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Irish business activity "strengthens in early 2012"

A survey by KBC Bank Ireland/Chartered Accountants Ireland shows that Irish business activity levels show the first clear improvement since 2007.

IRISH BUSINESS ACTIVITY has strengthened in 2012, according to the KBC Bank Ireland/Chartered Accountants Ireland business sentiment survey.

According to the survey, Irish business activity levels show the first clear improvement since late 2007, while job gains are now matching job losses for the first time in more than four years.

The survey examines current business conditions in some detail and also addresses some key issues facing Irish business at the moment including the Fiscal Stability Treaty. It said that although it depended on the sector, early 2012 was less difficult for most companies.

The survey also said that the next 12 months will still be difficult for Irish companies, but recovery is expected to strengthen and broaden and be firmly established within three years.

When it comes to the Fiscal Stability Treaty, opinions showed that there is still significant uncertainty across the business community as to what it will entail. Seven out of 10 companies feel they understand the broad issues in relation to the referendum on the Fiscal Treaty

Opinion is fairly evenly divided as to whether the Treaty will materially change the thrust of Irish budget policy, the survey showed.

Speaking on the release of the survey, John Hannaway, President, Chartered Accountants Ireland noted that:

It remains the case that the environment is tough and companies in areas such as construction or focused on the domestic consumer continue to report weaker demand.  However, at an aggregate level, there seems to have been a pick-up in business volumes of late and there is also an expectation of further modest gains in the months ahead.

Austin Hughes, Chief Economist at KBC Bank Ireland, who prepared the survey, stated:

Probably the most encouraging aspect of the survey are indications that employment across the Irish economy may be starting to stabilise. This is suggested by the number of companies reporting that job gains and losses are coming into balance after a sharp and broadly based drop in employment in the past few years.

He added that job trends still vary widely between sectors, but the broad picture emerging from the survey hints at a more stable employment situation.

Hannaway added that the general expectation among Irish businesses is that the next 12 months will see only a limited pick-up in activity but a gradual broadening of the recovery should take hold within three years.

However, even at that stage roughly 10 per cent of companies think they will be producing less than today.  So, Irish business seems to be taking a very cautious view of the outlook, probably because of the experience of the past few years. Roughly half of the companies surveyed don’t expect to be operating on a notably greater scale within a five year timeframe.  As a result, they don’t intend to add additional capacity over this period.  A cautious approach is understandable but it will act to restrain the recovery at least in its early stages.

The survey showed that strongest area of activity was the business services sector, while manufacturing firms also reported a healthy positive activity balance in early 2012. Roughly one third of them saw increased volumes compared to roughly one in four reporting a decline.

In sectors such as construction and other property activities, as well as those areas related to consumer activity, the balance of activity remained clearly negative in early 2012. But in the case of construction, there was a slight easing in the proportion of negative responses.

Within a five year timeframe, two thirds of firms plan to increase employment and almost half plan to add to productive capacity. Half of firms surveyed do not expect to add to capacity in the next five years. This suggests Irish businesses are taking a relatively cautious view of their prospects, said the survey.

Read: Consumer sentiment brightened (slightly) in March>

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