• BDO Optimism Index Q3 2016

BDO Optimism Index Q3 2016

19 September 2016

A third of companies in Ireland expect Brexit to have a negative impact on their business and projected activity levels for the third quarter dropped for the first time in five years, according to the latest BDO Optimism Index.

Some 34% of companies of the 350 businesses said Brexit will have a `somewhat negative’ or `very negative’ impact on their trading, with 50 percent saying it won’t impact them and 9 percent expecting a boost from the UK’s decision to leave the European Union. Exporters are most fearful about the prospects of Brexit, with 36 percent of the sector saying it would have a ``somewhat or very negative’’ impact on their prospects.

The overall optimism figure is in line with the previous quarter falling slightly to 66.4 points (from 66.8 points) for the quarter.

Projections for third quarter activity fell for the first time since 2011. Some 46% of companies said they expected a higher level of activity in the third quarter, compared to 53% who projected higher levels of activity in the same period of 2015. That’s the first anticipated quarterly fall since 2011. There was a rise in the number of companies predicting lower activity in the third quarter, with 15 percent anticipating a reduction, compared to 13 percent in the same period last year.

Among larger companies, 18 percent forecast a fall in activity in the third quarter, compared to 4 percent who said the same thing last year. However 62 percent of these companies still expect a higher level of activity in the third quarter. Some 19 percent of exporters expect a drop in business in the period, compared with 14 percent of companies who are indigenous only.

The retail and wholesale trade sector was most pessimistic about third quarter prospects, with 24 percent expecting lower business levels in the period.

Second quarter employment levels remained broadly stable. Some 77 percent of companies said they employed the same number of people in the second quarter of 2016 as they did in the same period last year and just 7 percent said they had fewer people on the payroll, compared to 8 percent who said that last year.

However 16 percent said they had more staff in the period, compared to 21 percent who said that last year.

Some 49 percent of companies reported higher business activity levels in the second quarter, a marginal increase from the same period in 2015, when 48 percent of respondents reported higher business levels. That’s the slowest rate of growth in the period since 2013.

There was a fall in the number of Dublin-based companies raising prices in the second quarter, with 17 percent saying they had increased prices in the period, compared to 22 percent who raised prices in the same period last year. There was also a sharp dip in the number of companies who said operating profit increased in the second quarter, 36 percent in 2016 versus 43 percent in 2015.

Commenting on the Optimism Index’s findings, Michael Costello, Managing Partner of BDO, said:

``Clearly Brexit has created uncertainty for businesses not only in Ireland and the U.K., but across Europe and indeed globally. This uncertainty is prompting companies to downgrade their forecasts for activity going forward and given the fact that the UK is our largest trading partner, that is not surprising.

``What is certain is that Brexit will be a drawn-out process and while there will be some risks, there will also be opportunities for growth and preparation is key.

``However looking at the Index, it is clear that Ireland’s economy and businesses are in a healthy state, activity levels are increasing, albeit at a slower pace, and employment levels are holding steady. Clearly we are entering into a new phase of economic development and it will be interesting to see how the rest of the year plays out.’’