The Spring 2010 KBC Bank/Chartered Accountants Ireland Business Sentiment Survey issued today, signals a brighter business outlook for manufacturing and business services while sentiment in firms focused on construction and consumers remains weak.

The poll of chartered accountants working in senior positions (CEO’s, MD’s and FD’s) in Ireland’s "leading companies," was conducted in mid March and the results presented are based on 353 completed responses. So it was completed before last week's announcements on bank recapitalisations and the estimated cost to the economy of rescuing to banking sector, which is expected to be about €32bn or 20% of GDP (gross domestic product). This amount excludes any losses which may arise at the toxic property loans agency, the National Assets Management Agency (NAMA).

The overwhelming majority of survey respondents felt that any impact from NAMA on credit availability was likely to be modest with only very small numbers expecting a major impact.  Some 2% expect a significantly positive impact and 5% anticipate a significantly negative impact.  However, the most widely held view expressed by 44% of respondents was that NAMA would have a modestly positive effect while only 8% envisaged a modestly negative effect. 

The Spring 2010 results found that two thirds of firms had cut pay in the past couple of years.  This result is reported to be broadly consistent with responses to a similar question in the previous survey.  Once again, pay cuts were common across most sectors but were notably less widely implemented in manufacturing than elsewhere.  This may seem surprising given that manufacturing firms are generally seen at the sharp edge of cost concerns.  In part, this result could reflect a more flexible pay structure in those companies. 

It is also noted that in spite of improving activity, manufacturing firms have continued to shed employees.  So, the adjustment process could be somewhat different.  Finally, it is clearly the case that domestic demand in the Irish economy weakened far more than exports in the past year.  So, the need for pay cuts may have been more pressing for firms competing on the domestic market. 

Expectations for the next three months vary widely across sectors and even across businesses within the same sector.  Far and away the strongest responses are from business services where half of those surveyed see activity straightening and fewer than 1 in 5 see further weakness.  This is viewed as particularly encouraging because it could hint at some improvement in domestic conditions.  Some 41% of manufacturing firms anticipate stronger business levels in contrast with 15% who expect a further decline.  Again, these figures testify to significant variations in the experience of individual firms and the problems inherent in ‘one size fits all’ summary measures of economic activity.