Confidence in Service Sector in Ireland is highest in EU – KPMG survey

Confidence in the future of the Service Sector in Ireland is currently the highest in the EU. That is 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 – well ahead of the EU average (+33.6) and the global average (+43.9).

Confidence in future activity in the Manufacturing Sector in Ireland is currently running at +45.2, broadly in line with the EU average (+44.5).

Overall, the survey results suggest that 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 NAMA Effect

“Confidence in a local recovery is partly founded on the completed transfer of the largest property loans from banks to NAMA and this has provided some increased liquidity to support targeted bank lending to the SME sector,” said David Kennedy, Head of Advisory at KPMG (pictured).

“The expectation that employment will increase, albeit marginally, over the next 12 months is heartening,” continued Kennedy. “Irish business has responded effectively to the challenges of recession by taking difficult steps over the last 24 months and they are now poised to benefit from those actions.

According to Kennedy, the expectation that output prices will continue to fall reflects a cross-sector commitment to improving Ireland’s competitiveness. “Reduced competitiveness was at the core of many of Ireland’s problems over the past 24 months and this is increasingly being accepted across both the private and public sectors.”


The global picture

On a global level, the survey found that companies across the world continue to expect activity to grow during the next twelve months, with overall confidence balances little-changed since the previous survey in February 2010.

The US seems set to lead the expansion in global activity, with a Manufacturing Sector figure of +69.3, the second-highest of all surveyed countries, and a Service Sector figure of +61.2, which is the top global ranking.

While surveyed firms in the BRIC (Brazil, Russia, India, China) area remained upbeat, sentiment had weakened since the previous survey amid expectations of slower growth in China. Companies in Japan continue to expect subdued growth despite improvement in sentiment since February. Both the US and BRIC area expected to post the strongest rates of job creation.

A notable finding in the EU part of the survey was the slip in confidence in the Service sector to its lowest since April of last year (+33.6), down from +39.5 – Ireland being the notable exception as detailed above.

Greece continues to lag well behind despite the recent EU-IMF rescue loan for its government, with manufacturers signaling pessimism for the fifth consecutive outlook period and to the most severe degree in the survey history.

In Spain, fears over sovereign debt and financial sector stress, says the report, are likely to have contributed to June’s lower confidence balances for manufacturing and services activity compared with February.

Irish Service Sector Results:

–       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 strongest 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
–       Capital expenditure is predicted to decrease again over the coming year, albeit to the least extent in the current six-survey sequence of decline.


Irish Manufacturing Sector Results:

–       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 said, the forecast rise is marginal at +2.4.
–       Spending on both capital and R&D is predicted to increase slightly
–       Input cost inflation is expected to be strong, while output prices are forecast to increase for the first time since July 2008

The Business Outlook Survey is produced by Markit Economics on behalf of KPMG and is based on a survey of around 11,000 manufacturers and service providers. The reports are produced on a tri-annual basis, with data collected in February, June and October.