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Irish Service Sector Confidence Highest In EU

by Jason Gorringe,, London

06 August 2010

Confidence in the future of the services sector in low-tax Ireland is currently the highest in the European Union (EU), according to the latest International Business Outlook Survey from KPMG.

The most recent figures, which reflect confidence in expected performance over the next 12 months, show that sentiment regarding Irish business activity in the service sector is running at +47.9, which, as well as being the highest in the EU, is also well ahead of the EU average (+33.6) and the global average (+43.9).

The latest survey results, compiled by research firm Markit Economics on behalf of KPMG, also suggest that overall expectations among the Irish business community are increasingly positive. Revenues and new business in both the service and manufacturing sectors are expected to grow over the next 12 months, with profits in the service sector poised to grow more quickly than across the EU as a whole. Marginal increases in employment are also expected in both sectors. The results of the KPMG/Markit Economics survey show that:

  • Revenues for the service sector in Ireland are registering at +32.4, up from +17.3 in the last survey (February 2010);
  • New business is at +48.3, up substantially from the previous figure of +33.1;
  • Profits, at a figure of +26.5 are up from +11.5 and are forecast to grow more quickly than across the EU as a whole;
  • Employment expectations have increased to +16.8 from +6.3, the best figure since October 2007;
  • Although input costs are predicted to rise, the rate of inflation at Irish service providers is expected to be the weakest of all the monitored EU nations;
  • Charges are forecast to keep falling, extending the current sequence of negative expectations to five surveys; and
  • Capital expenditure is predicted to decrease again over the coming year, albeit to the least extent in the current six-survey sequence of decline.

Confidence in future activity in the manufacturing sector in Ireland is currently running at +45.2, which is in line with the EU average (+44.5). It is also ahead of a number of other economies including Japan (+30.8), France (+34.8) and China (+38.2), but is behind the US (+69.3), UK (+56.2), Germany (+50.2) and Poland (+46.5).

The survey found, in the Irish manufacturing sector, that:

  • Revenues are at +30.2, up from +26.3 in the last survey;
  • New business is at +38.9, up from +34.3, making it the highest level of optimism in eight survey periods;
  • Higher profits are predicted for the third consecutive survey, with the figure of +21.4 broadly similar to that seen across the EU as a whole;
  • For the first time since July 2007, Irish manufacturers also expect to increase employment over the next twelve months. That being said, the forecast rise is marginal at +2.4; and
  • Spending on both capital and R&D is predicted to increase slightly.

David Kennedy, Head of Advisory at KPMG, says:

“Confidence in a local recovery is partly founded on the completed transfer of the largest property loans from banks to the National Asset Management Agency (NAMA), this has provided some increased liquidity to support targeted bank lending to the SME sector. The government’s announcement of a EUR500m fund to support innovation has also been well received. Signs that tax receipts are now stabilizing - albeit at levels below 2008 – brings greater certainty and has driven a cautious improvement in consumer sentiment.”

“The expectation that employment will increase, albeit marginally, over the next 12 months is heartening. Irish businesses have responded effectively to the challenges of recession by taking difficult steps over the last 24 months. They are now poised to benefit from those actions."

“Improving service sector optimism is founded on the brighter global outlook and increased confidence that Irish businesses have responded well to the challenges brought about by the downturn. The expectation that output prices will continue to fall reflects an across-the-board commitment to improving Ireland’s competitiveness.”

TAGS: investment | economics | business | Ireland | fiscal policy | international financial centres (IFC) | offshore | manufacturing | unemployment

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