Not surprising, fears over the effects of Brexit is the biggest concern.
60% of SMEs expect negative effect on profits from Brexit.
Cost Competitiveness is key to future sustainable economy.
The results of the ISME Quarterly Business Trends Survey for the second quarter of 2016, released today (Monday 11th July) show a reduction in business confidence from SME owners after the Brexit vote, with a drop in ten of the twelve economic indicators tracked. While the results to the end of March showed a drop in sentiment, the indicators in the second quarter have deteriorated even further, wiping out the gains to end of 2015. The Brexit fallout has replaced economic uncertainty as the biggest concern for SME owners.
The indicators for Business Confidence, Profitability and Current Employment have dropped to single digit figures for the first time since Spring 2013. Sixty percent of respondents expected that Brexit would have a negative effect on their bottom line, with 32% stating ‘no change’.
Commenting on the results of the SME Business Survey, Mark Fielding, ISME CEO, said, “it is not surprising that the indicators are negative, based on a survey in the first week after the Brexit vote, with business expectations dropping by 35 points (minus 48 since Q4, 2015). The initial post Brexit shock, with the sterling drop in value have combined with the ongoing increasing business costs, continuing difficulties in accessing bank finance and late payments to reduce SME Business Confidence”.
Brexit is a negative event for the Irish economy and for the EU. We in Ireland will still remain one of the EU's strongest growing economies and must do all within our power to remain so. The outcome has significantly increased economic uncertainty and will dominate the economic and social agenda for years. The task now for our Government is to ensure that Irish interests are protected and in particular the SME sector, which accounts for over 70% of the private sector employment.
While we recommend that a dedicated unit be set up to coordinate all national efforts post Brexit and there are numerous calls to have IDA, Enterprise Ireland and all our embassies active in promoting Ireland as a destination for business and as a supplier of goods and services, we must also ensure that the country protects and improves its competitiveness.
This will involve keeping all our business costs under control, including labour costs. It should also involve a major overhaul of our business and personal tax regime, to ensure that aggressive external competition is handled successfully.
The biggest decrease in the indicators is in Business Confidence and Expectations, where both decreased in this quarter by -29 and -35 respectively.
Business Environment remained almost static, while Profitability Expectations decreased by 17 points to 9%.
Current employment has reduced by 22 points to 6%, while Future Employment Expectations have dropped from 27% to 18%.
Current Sales reflect the recent CSO figures and have increased from 28 to 36. Future Sales in line with other indicators are down from 42 to 33.
Current and Future Investment levels decreased in this Quarter, however the general trend in investment is positive, despite the more negative indicators, showing that SMEs are planning and are doing their best to encourage trade.
Decreases in Current Exports of 10 points with Future Export Expectations dropping by a massive 25.
The survey was conducted in the first week of July, with 945 SME respondents. 54% of whom employ less than 10, while a further 36% employ between 11 and 50 and the remaining 10% employ between 51 and 250. Geographically, 34% are from Dublin with 66% spread across the country, with 13% having multiple sites, giving a good reflection of the country as a whole; sectorally, geographically and by employee numbers.
The Survey also tracks the current biggest concerns of SMEs:
The results for the Retail sector show a mixed bag. The sector is still coming to grips with the recent increase in the National Minimum Wage. While Current Sales have increased 16 points and Profitability Expectations are up 11 points, the Retail Sector reported decreases or no change in six out of the ten indicators tracked for this sector. Both Current and Future Employment are down marginally and overall Business Confidence has dropped into negative for the first time since Q3 ’13. Current Investment is at the highest it has been since before the recession, demonstrating retailers’ confidence in their ability to trade through any Brexit fallout. The biggest concern for 30% of retailers was Brexit, with Economic uncertainty second at 26%.
Manufacturers have recorded large positive increases in Current Sales +22, Business Expectations and Current Exports both +19 and Sales Expectations at +12. While current Employment is down slightly -7, a net 29% state that they expect to increase employment. This quarter’s Manufacturing results show a generally positive turnaround from Q1. 38% of manufacturers see Brexit as their biggest concern.
Exporters, who are the most vulnerable to external shocks, show in the indicators ten out of twelve reductions while all still in the positive. Current Sales are up 17 points to +49 in line with the rest of the economy and Future Sales static at +46%. As expected the largest decrease is in Future Exports dropping 34 points from +49 to +15 while Business Confidence dropped 31 points to +13, as an immediate result of the Brexit shock. The sterling fluctuations will continue to have short to medium effect on these indicators. Brexit is the biggest concern for 35% of exporters.
The Services sector is the most affected by the Brexit situation. While all of the indicators are still in positive territory, the Services sector saw eleven of its indicators reduce, with Current Exports showing an increase of 13 points to +23. Business Confidence, in line with all other sectors declined by 32 points to +7.
The Association demanded:
A dedicated unit within the Department of Jobs Enterprise and Innovation to coordinate the various activities to counter the negative effect of the Brexit vote.
Expand the export capacity of the SME sector through soft supports.
A full benchmark and overhaul of all government influenced business costs with a target of a reduction to below the EU average for all within one year.
A full review of labour market inhibitors, including social welfare constraints and black economy.
Introduce new and improve existing activation schemes in conjunction with employers.
Reform the social welfare system to make it more profitable to work and reduce state assistance for those who refuse job offers.
Increase job-rich infrastructure investment.
Ensure real measurable access to affordable credit for viable SMEs.
Outsource more state sector services to SMEs.
A greater training incentive for small business to compensate for the cost of on-the-job training.
“We must remain ever vigilant on our cost and tax competitiveness. Ireland must remain a top location for FDI and a strong location for our indigenous enterprises from which to trade locally and internationally. With these new external factors to be overcome, 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. Competitiveness is the goal, productivity the measure and survival the result”, concluded Fielding.