The Irish economy may be starting a gradual turnaround despite tough conditions for businesses, but weakness in activity and employment remain.
The Winter Business Sentiment survey produced by KBC Bank Ireland and Chartered Accountants Ireland found businesses were reporting better conditions than 12 months ago. Businesses were also buoyed by the measures announced by Minister for Finance Brian Lenihan in Budget 2010.
However, firms are not anticipating a dramatic turnaround, the survey said, with employment still falling, although at a lower rate than previously experienced.
“The Winter Business Sentiment Survey is telling us the worst is over. Equally, however, very few firms expect anything approaching a dramatic recovery in the early months of 2010,” said Chartered Accountants Ireland president Tom Fitzpatrick.
“It seems clear that an improvement in global conditions has translated into more encouraging signs although domestic spending remains under pressure.”
KBC Bank Ireland's chief economist Austin Hughes said the majority of firms had made adjustments to improve viability, and many appeared to believe the worst of the adjustment to the downturn could have passed.
"Far and away the most important change has been a reduction in payroll numbers as companies adjust to the prospect that pre-crisis levels of demand are unlikely to return," he said.
"Although companies didn’t regard reductions in pay as the key action taken, as many as 66 per cent of respondents said there had been pay cuts at their companies. Clearly pay cuts have played an important role but the major adjustment has been a reduction in payroll costs through job losses."
Separately, National Irish Bank’s economic commentary said Ireland’s “dramatic economic decline” has ended, predicting a return to weak growth in 2010.
Export growth is expected to reach 4 per cent as the global economy recovers.
The bank’s chief economist Ronnie O’Toole pointed to the stabilisation in the labour market in recent months as evidence of the downturn’s end.
“Unemployment has not risen over the last few months, while income tax revenues have been stronger than expected. This shows that job losses are running at a far lower level, and that people are increasingly going into full time education or retiring early rather than signing onto the dole. The re-emergence of a modest level of net emigration hasn’t played a big role in containing the rise in unemployment,” he said.
However, construction and the public sector would continue to shrink next year, the report said, and borrowing will remain high next year, despite the cuts implemented in the 2010 budget. The country will remain susceptible to shifts in international sentiment, the report warned.
“We can do nothing about the international factors. This budget, however, shows that we are now more in control of the domestic factors,” said Mr O’Toole.
“Only through a full follow-through of the budget measures over time will we convince the markets that we intend to put our house in order.”
The report also warned that the global recovery was not self sustaining, and would moderate in the second half of 2010.
