Wed 1st Aug 2018
NI Chamber & BDO Quarterly Economic Survey: Recruitment difficulties and tougher trading conditions face firms amid sluggish growth
Businesses experienced a modest improvement in performance for Quarter 2 of 2018 after what had been a poor start to the year.
However growth still remains subdued according to the latest Quarterly Economic Survey published today (1 August 2018) by Northern Ireland Chamber of Commerce (NI Chamber) and business advisers BDO.
The survey also revealed that businesses in Northern Ireland believe the lack of devolved government is damaging the local economy.
In the survey, which covers Q2 of 2018, 55% of members said their main concern in trying to grow their business centred on how Northern Ireland is governed with many believing the Stormont impasse is damaging the local economy.
There is also concern about the outcome of Brexit with 53% saying it would affect growth plans while competition remains a worry for 44% of businesses.
Overall, the report shows peaks and troughs in the performance of both the manufacturing and services sector during Q2 2018.
The survey revealed a pickup in manufacturing during Q2 after a particularly challenging Q1 for the sector. Most key balances are positive (only 1 of 14 negative) signaling growth – and most balances are up on Q1 (10 of the 14). Expectations to take on staff are also up in Q2 and 3 in 4 manufacturers are trying to recruit. Investment intentions are stronger with the percentage of firms planning to invest in training highest across the 12 UK regions. Confidence is up around turnover and profitability.
However Northern Ireland ranks below the UK average for 12 of the 14 key balances, making it one of poorest performing UK regions. The survey also revealed that domestic and export sales balances are still weak with NI’s export sales balances weakest across all of the regions. The cashflow position is also weak. There is a growing pressure on manufacturers from pay settlements and raw material cost pressures remain high.
The services sector experienced modest improvement in some key balances in Q2 after a sluggish Q1 performance. 13 of 14 key balances are positive this quarter although only 5 of the 14 balances are up on Q1 2018. Export sales and orders balances turned positive this quarter and the sector’s performance on export sales was good from a regional perspective (5th highest). NI has the highest share of services businesses working at full capacity – NI 46% vs. UK 39%.
However, confidence within the services sector weakened in Q2 – continuing a downward trend since the end of 2016. Investment intentions also fell in Q2 and remain low. The cashflow balance is negative and weakest across the regions.
The biggest concern for businesses continues to be the difficulties they face when trying to access skills, with 3 in 4 of those trying to recruit finding it difficult to attract the right staff. 69% of manufacturers are finding it difficult to recruit skilled manual workers. Competition is also a key concern for members in Q2 with 44% of members highlighting this as a growing concern. Exchange rate pressures continued to ease during Q2. 31% of members stated that exchange rates are more of a concern to their business than 3 months ago (55% in Q4 17). Inflation and interest rate concerns also eased.
The latest Brexit Watch suggests that 1 in 3 members believe that Brexit has had a negative impact on turnover/sales while for 7% it has meant a boost to their business. The most negative impact however has been around costs, particularly raw material costs, with 46% of members stating that their business has been negatively impacted by higher costs since the vote took place – sterling’s depreciation being a major factor. There has also been a negative impact on the employment of non-UK nationals for 26% of members. Brexit’s negative impact does appear to be accelerating with a larger share of members negatively impacted in terms of sales, exports and the employment of non-nationals in Q2 2018 than in Q3 2016 when the first effects of the vote were being felt.
Brexit is also having a more negative than positive impact on business growth plans. Some 37% of members are scaling down/freezing growth plans because of Brexit while 10% are expanding them. In addition, 14% of members are expanding investment plans outside Northern Ireland. Brexit’s negative impact on business growth plans is also accelerating. In Q3 2016 29% of members were scaling/down freezing growth plans because of Brexit (37% Q2 18).
Future growth plans
In order to understand medium term growth plans, members were asked if they had plans to grow their organisation over the next 3 to 5 years. Around 7 in 10 members (69%) did have plans to grow their business, 12% had no plans and 19% were not sure. How Northern Ireland is governed (55%) and the outcome of Brexit (53%) are main concerns in trying to grow the business but almost 1 in 2 members also lack confidence in the economy (46%) and are concerned about recruiting/retaining skilled staff (45%).
Businesses are equally split on what should be done to ensure key strategic and other spending decisions in Northern Ireland are progressed. The survey identified restoring devolution (25%), implementing Direct Rule (27%) or the introduction of some form of ‘holding’ action (27%) as the options put forward by businesses in an open-ended question.
Commenting on the survey, Ann McGregor, Chief Executive of NI Chamber, said:
“This quarter’s survey shows that Northern Ireland’s economy faces sluggish growth, with much more needing to be done to put the local economy on a surer footing. There is no doubt that business confidence would rise if we had an Executive restored immediately to focus on the fundamentals for business – such as improving infrastructure, incentivising investment and addressing the skills shortage.
“Big, bold action is needed with major new incentives for business investment, confidence-boosting infrastructure projects, and a concerted effort to slash the up-front cost of doing business, which is putting consumer-facing businesses especially under intense pressure.”
She continued: “The availability of skilled staff remains the biggest issue that businesses face. Access to people and skills is a top priority for employers and firms are doing everything they can to recruit, retain and up-skill their workforce.
“We must continue to address this at a local level, and Westminster must set out a clear immigration policy that addresses the skills shortages that are critical to local businesses. Failure to do so means that the economic potential of Northern Ireland will continue to be held back.”
Brian Murphy, Managing Partner at BDO, said:
“Manufacturing businesses have performed better in the second quarter of the year, exceeding the expectations of many. This is to be welcomed as a sign of the strength, determination and resilience of the private sector in Northern Ireland.
“An increase in confidence in the manufacturing sector for greater turnover and profitability is bolstered by strong investment intentions and recruitment expectations. With local unemployment at its lowest rate in a decade, this commitment to investment is a positive indication that, despite the challenges businesses face, there will be even greater opportunities for firms to continue to grow and expand their workforces.”
Pictured: Ann McGregor (Chief Executive of NI Chamber); Brian Murphy (Managing Partner at BDO) and Maureen O’Reilly (Economist for the survey) present the latest NI Chamber/BDO Quarterly Economic Survey findings.