BDO Optimism Index Q2 2016

24 June 2016

BDO is delighted to present the Optimism Index for Q2 2016 - an analysis of business optimism, trends and challenges for this quarter.

The first quarter of 2016 presented both opportunities and challenges for businesses in Ireland. While the Irish economy was growing at the fastest pace in the EU, volatility in the global markets and concerns over the U.K.’s forthcoming Brexit referendum impacted on the wider business environment.

This was evident in the dip in the activity levels of Irish exporters. But, overall business sentiment was up and Irish companies continued on their upward growth trajectory.

After two years of rapid economic expansion what we are now seeing is a stabilisation, or normalisation, of business activity levels in Ireland. 47% of businesses reported higher activity levels in the first quarter, in line with the same period last year, while only 18% reported a drop in activity levels, the lowest since the survey began in 2011. Looking ahead 53% forecast a higher activity level in the second quarter, a slight improvement on the same period last year and a sign of steadying in the pace of growth.

Perhaps the most striking aspect of the Optimism Index is the divergence in the growth paths of mid/large businesses and the micro and transitional companies. Some 65% of mid/large companies reported higher business activity in the first three months of the year, almost double the level in quarter one of 2015. However first quarter activity levels for transitional and micro businesses stalled.

While there was only a modest increase in the number of companies reporting higher employment levels in the first three months of the year (17% v 16% in Q1 2015), just 7% of companies said employment levels were lower compared to the same quarter last year. This is the lowest level since the survey began and points to a period of consolidation for businesses in Ireland.

Continuing the theme of consolidation and stabilisation the Index shows that 22% of companies were charging higher prices while just 6% of businesses were charging lower prices, compared to the same quarter last year. That is the lowest level of price cuts in the survey’s history.

Similarly operating profit for companies increased slightly and, significantly, a rising number of companies outside of Dublin continue to show increased profits. 37% of businesses outside the capital reported higher operating profits compared to the same quarter last year, with just 18% posting a decline – again a record low for the survey.

All of this contributed to the Optimism Index’s increased reading of 66.7 points for the quarter.

In summary then the BDO Optimism Index shows Irish businesses are continuing to grow, optimism is rising and activity is stabilising. While our exporters were hurt by the global volatility in the first three months of the year, they are bullish about their prospects in the second quarter as stability returns to macro-economic conditions and the great Brexit debate is resolved, one way or the other, offering visibility for companies.