IBEC, the business representative group, today published the results of its latest Irish Business Sentiment Survey, which shows that business confidence strengthened in the second quarter (Q2) for the third consecutive quarter, but recovery is stronger in the exporting sectors than in the domestic economy.

The balance of companies rating the overall business environment positively has improved in 2010 from the extremely low base last year. Nonetheless, 30% more companies had a negative outlook than a positive in Q2. This reflects companies’ uncertainty about the economy and the very significant challenges that Ireland continues to face around public finances and the banking sector. The forward-looking index points to some slowdown in the improving trend, with only very marginal change from Q1 to Q2. The indicator has, however, at times underestimated the improving trend in the current conditions index.

The outlook for export sales has remained the most positive indicator throughout 2009 and the trend has continued into 2010. On balance, 14% more companies expected export sales to increase in the coming three-month period than anticipated a decrease. This reflects the extent to which Ireland’s exporting sector has fared better than the domestic sector.

Commenting on the data, IBEC senior economist Fergal O'Brien said: “The results, together with the latest national accounts data, point to the two-speed nature of the recovery.

“The survey asks companies about their confidence in both the overall business environment and their own business. Like in previous quarters, companies were considerably less negative about their own business than the overall environment. This is not surprising given the ongoing uncertainty around the economy, but is a positive indicator for real activity in the economy. The confidence indicator for managers' own businesses improved by 6% points, from -16 in Q1 to -10 in Q2, suggesting that companies are getting close to stabilisation.

“The exporting sectors rebounded strongly in the first half of the year, but companies operating mainly in the domestic sector are facing a much tougher environment. Companies’ expectations on export sales have now been positive for five consecutive quarters, but, disappointingly, expectations on domestic sales dipped back into negative territory in Q2, having briefly turned positive in Q1.

“The continued weakness in the indigenous sectors of the Irish economy highlights the need for Government initiatives to underpin domestic demand. This should be done through a well targeted public capital investment programme and an approach to the fiscal adjustment process that promotes consumer confidence and encourages a return to more normal spending and saving patterns.”