BDO Optimism Index Q4 2017

18 December 2017

BDO is delighted to introduce the BDO Optimism Index figures for the fourth quarter of 2017. The index, a continuous survey carried out for the last six years, tracks business performance and the views of business leaders across Ireland.

This quarter, we note that the level of exporters reporting increased business activity in the third quarter of 2017 fell by the biggest margin since 2013.

The index also revealed that Irish micro businesses endured a record sentiment decline as levels of business activity and operational profits plummeted to a four year low. The record slump in growth was compounded
as the number of micro businesses which recorded a decrease in business activity and operational profit rose to a four year high.

While the drop in sentiment amongst exporters and micro businesses is of concern, it is possibly explained by the continuing uncertainty over Brexit. Ireland is one of the most open trading economies in the world, so exporter sentiment is an indicator of our economic health.

Other findings from the survey show that more than one third (39%) of Irish firms believe the crucial issues facing their business are not being appropriately addressed by Ireland’s elected representatives at an EU level. Of the Irish firms surveyed, only 6% totally agree that the issues facing their business are being properly addressed.

This is a troubling statistic as we approach a difficult negotiating period next year. We expect that as more certainty emerges from the Brexit discussions, businesses will draw more comfort.

While sentiment across the broader business economy is still quite strong, it is concerning to see that micro businesses do not share this sentiment. This sector is an essential part of the Irish economy, accounting for 92.2% of Irish enterprises (source: CSO). The shift into negative employment territory amongst these companies is also cause for concern.

Although micro businesses suffered a turbulent quarter compared to previous years, mid-to-large companies performed well and recorded increased levels of business activity and operational profit. Some 58% of larger businesses forecast increased activity for the final quarter of 2017, compared to 38% last year. However, again, micro and smaller businesses were far less optimistic, as the number of companies predicting an increase in activity fell by 8% for micro companies and 2% for transitional companies.

Despite the shift to negative territory amongst micro businesses, quarter employment levels remain consistent with previous years, the clear majority of companies looking to grow (19%) or maintain (72%) their workforce. With regard to pricing levels, the majority of businesses (71%) surveyed indicated prices will remain static compared to the same quarter last year.

BDO’s ‘Optimism Index’ has been tracking business sentiment on a quarterly basis since 2011. Optimism is up from this point last year, rising from 65.3. in 2016 to 66.2 in 2017. Medium and large sized businesses are the most optimistic at 67.4 and 71.2 respectively.

At first glance, it appears business growth is moving in the right direction and figures for this quarter against the same period last year remain strong. However, when you drill down into the statistics it shows that medium and larger businesses are pulling away from micro businesses. The divergence between the larger and smaller business could be explained by access to funding, increased exposure to personal financial issues and the knock-on effects of Brexit.