ECONOMIC RECOVERY STRENGTHENING AS SMEs REPORT POSITIVE GROWTH.
ECONOMIC RECOVERY STRENGTHENING AS SMEs REPORT POSITIVE GROWTH.
ISME, Monday 20th July 2015
Increases in 10 of 12 Economic Indicators.
Potential for 50,000 jobs in SME sector.
Wage expectations must be realistic as SMEs struggle to compete in international markets.
Only Export indicators showing a decrease.
Rising concern over Minimum Wage increase.
The results of the ISME Quarterly Business Trends Survey for the second quarter of 2015, released today (20th July) show increases in 10 of the 12 economic indicators tracked. The Association welcomed the continued improvements in the indicators but warned that competitiveness is decreasing and business costs, particularly labour costs, have the potential to hinder economic growth and job creation.
Mark Fielding, ISME CEO, commented on the results of the survey, “The evidence of a growing momentum in the economy in 2014 is continuing after a slow start to the year. The fact that 10 of the 12 indicators in this survey have increased in the Quarter is a very positive sign for the economy. Of particular importance are the increases in Current and Future Employment figures and Investment levels. These indicators point to both increased employment and investment demonstrating that SMEs are focused on developing their businesses and are working hard to secure growth”.
“Based on the figures for employment, it is reasonable to expect an increase of upwards of 50,000 jobs in the SME sector, should conditions remain stable. The clouds on the horizon are National Minimum Wage increase, flexible hours interference and the slowness of the Social Welfare system to meet reasonable changes.”
The survey was conducted in early July, with 1,020 SME respondents. 56% of whom employ less than 10, while a further 34% employ between 11 and 50 and the remaining 10% employ between 51 and 250. Geographically, 35% are from Dublin with 63% spread across the country, with 12% with multiple sites, giving a good reflection of the country as a whole, both sectorally, geographically and by employee numbers.
Biggest-Concern Economic Uncertainty
Business Confidence and Expectations increased in this quarter after Q1 declines.
Business Environment and Profitability expectations both increased by 7 points to 31% and 32% respectively.
Current employment is up 3 points to 19%, while Future Employment Expectations have risen by 7 to 27%, the best since Summer ’07.
Both Current and Future Investment levels increased in this Quarter, showing that SMEs are planning for growth and are doing their best to capitalise on any upturn in the economy.
Decreases in Current and Future Export Expectations are in keeping with the cyclical nature of the Export sector.
“The decreases in the export indicators in this quarter could be partially due to the erosion of competitiveness that has been occurring. Government has stated that our recovery will be ‘export led’ but in order to make this happen, they will need to help reduce our business costs back into line with our international competitors. Irish businesses cannot compete effectively on the international stage if they are forced to pay wages, rents and utilities that are far higher than international norms.”
In Q1 the Retail Sector reported a positive 10 out of 10 indicators, a dramatic turnaround on the 9 out of 10 decreased indicators that had been reported at the end of 2014. In this quarter, 8 of the 10 indicators decreased, however 9 out of 10 of them are still higher than Q4’14, meaning that although the retail situation is not as positive as the first quarter of the year, the general trend is improving. A further positive is that one of the indicators which increased for retail in this Quarter is Current Sales, going from 25% to 28%, a good sign that economic improvements are resulting in increased consumer spending, even though margins are still under pressure. Disappointingly Employment figures here are down on previous quarters.
There are very positive signs from Manufacturing with increases in 10 of the 12 economic indicators. Current and Future Investment levels in the sector are quite high in this quarter- both are at 51%, 6 and 8 point respective increases. Business Expectations improved by 10 points to 67% and Sales Expectations went from 45% to 60%, both positive signs for the sector. Current Employment Levels in the Manufacturing Sector have increased from 27% to 30% and Future Employment has gone from 27% to 37%. Current and Future Exports decreased (current: 35% to 18%, future: 58% to 46%) but this is in keeping with the overall trend.
While Current Exports decreased from 29% to 23% in this Quarter and Future Exports decreased from 45% to 40%, the general perception among exporters is quite positive. Their Current Employment increased from 26% to 29% and Future Employment went from 28% to 37%. Similarly, Current Investment levels are up 9 points to 51% and Future Investment expectations have increased from 34% to 41%. On the less positive side Current Sales dropped from 36% to 18% and a resultant dip in their Sales Expectations from 66% to 40%.
The Services sector has also seen improvements in 10 of 12 indicators in this quarter. Profitability Expectations in the Sector are up from 24% to 43% and the perception of the Business Environment has increased from 27% to 41%. The Employment indicators in this sector have seen very positive moves with Current Employment going from 10% to 21% and Future Employment increasing by 10 points to 31%.
SMEs are seeing signs of recovery but continue to be burdened by issues of rising costs and declining competitiveness. Labour costs in particular are a huge concern and owner-managers are anxiously awaiting the findings of the Low Pay Commission. A recommendation for a Minimum Wage increase will be disastrous for indigenous businesses as it will result in the knock-on effect of increasing wages at all pay grades. SMEs simply cannot afford to pay higher wages at this time.”
The Association called on the Government to assist the recovery by:
Reducing government influenced business costs to below the EU average.
Ensuring real measurable access to credit for viable SMEs.
Outsourcing more state sector services to SMEs.
Reforming the social welfare system to make it more profitable to work.
Expanding the export capacity of the SME sector through soft supports.
Attacking the scourge of ever-increasing black economy activity.
“It’s clear that economic recovery is taking hold and things are improving for Irish SMEs. However, it is imperative now that Government protect this fragile recovery with a prudent pro-business budget in October and a focus on real reforms for SMEs in the next Action Plan for Jobs.”