BDO is pleased to share the findings from our latest quarterly optimism index. This index is a continuous survey carried out for the past eight years, tracking business performance and the views of business leaders across Ireland.
Almost one year after the outbreak of the COVID-19 pandemic, businesses have continued to be affected by the various lockdowns and closures. 2020 was an exceptionally difficult year and there are few signs of optimism reported for the first quarter of 2021. Similar to previous quarters of 2020, we identified low readings for business activity, employment and profitability.
Looking ahead, the majority of firms believe they will be operating in a less favourable business environment. Our survey highlights that this large reduction in optimism is apparent across businesses of all sizes. Businesses outside of Dublin projected marginally better levels of optimism.
Current business activity was reported at its lowest level since 2012. This was the case for businesses of all sizes, with large businesses coping slightly better. While over half of respondents disclosed that their performance results were higher, 41% of businesses said that their results were either the same or higher than the previous year, showing how the pandemic has had an uneven effect on the business community.
Our participants were also asked to provide their estimated projections for the first quarter of 2021. To give some context around this question, we interviewed firms in late January. At this time, Ireland had been under lockdown with restrictions for various businesses. Given the circumstance, it is evident that the overall projections are in negative territory. Small businesses and indigenous only firms gave the most pessimistic forecasts.
The trend of steady employment is also eroding with just 5% of businesses indicating higher employment levels compared to 17% reporting the same in Q1 of last year. Despite these figures, over half of businesses surveyed are maintaining their employment levels. We also note that firms outside of Dublin are faring slightly better than those in the capital.
The survey showed that businesses are charging lower prices, in part due to the reduction in the standard rate of VAT from 23% to 21%. Here we also see small businesses making the biggest reductions in pricing, which ties in with their low projections for the first quarter of this year.
In keeping with the lower pricing levels, Q4 2020’s operational profits are significantly lower than profits in Q4 2019. Once more, small businesses are reporting lower levels of operational profit, with just 17% telling us that they will have higher profits compared to the year before. Businesses in Dublin are under more pressure than regional businesses in terms of profitability.
Sentiment for the remaining quarter is negative for half of Irish businesses – a drop of 24% in optimism compared to last year’s Q4. This depletion in optimism is seen across the board. With mid/large businesses showing healthier stats in all areas of the survey, they are slightly more optimistic than smaller businesses.
An element of Brexit's negative impact may be due to the new customs rules and the costs associated them. While supports and advice are available, it can still take some time for a lot of businesses to adjust to the reality of Brexit, especially with the ongoing COVID-19 crisis. It is critical that businesses seek professional advice if they are in a position to do so. A small minority of the businesses we surveyed have sought advice. The Government will also play a critical role in supporting businesses and maintaining the viability of some of the most hard-hit sectors.
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