SME sector continues to show increased confidence in economy
Things are looking up for the SME sector in general, according to ISME's latest research - yet retailers' business confidence has continued to decrease
14 October 2013
The Irish Small & Medium Enterprises Association has announced that SMEs in general expect further improvements in trading conditions over the coming year. The positive trends in 11 of 12 key business indicators show a continued and gradual improvement in the national economy. The only indicator showing a decrease was current exports, which has shown a zig-zag profile recently, which dropped by seven points, however this is counterbalanced by a 63% expectation of higher exports in the next 12 months.
The findings were announced at the launch of the Quarterly SME Business Trends Survey for Q3 – 2013, held in Dublin on 11 October. It was also revealed that employment figures for SMEs, both current and future are in the positive zone and record the best indicators since winter 2007. Net employment growth reflects the live register figures, while a net 15% of employers expect to employ more in the next year. The two main areas of expected jobs growth are in exporting firms and services with a net 32% and 16% predicting more employment. Even in retail, which is still struggling, a net 5% of employers expect to take on more staff in the coming year.
Budget must focus on cost curtailment
ISME CEO Mark Fielding said: "It is imperative that the budget, next Tuesday, does nothing to stifle the positive sentiment and trends in the indigenous SME sector. While the majority of SMEs continue to battle out of recession, the mindset is positive and cautiously expansionary. The main focus must remain on cost curtailment and any government budgetary intervention must not interfere with the gradual turnaround."
The survey was conducted in the first week of October, with over 1100 SME respondents. Half of the respondents employ less than 10, while a further 40% employ between 11 and 50 and one in ten employ between 51 and 250.
Both business confidence and expectations experienced large increases in this quarter. Business confidence has increased by 18 points to 28% and business expectations have increased by 12 points to 32%. This is the fourth consecutive quarter of growth for these indicators which had previously followed a zig-zag pattern.
Retail sector still struggling
The only sector whose business confidence decreased in Q3 of 2013 was retail, which saw a drop of 5 points from -4% to -9%. It is also the only sector to report a negative confidence rating. However, expectations in the sector have increased from -4% to 5%. ISME has long called for the establishment of a Retail Strategy Group.
Profitability expectations were positive for the first time since the beginning of the recession at 14%. This indicator had previously been negative or neutral since Q3 of 2008. The overall business environment perception, though still negative, improved by 17 points to -12%. However retailers reported a worrying -32% rating for profitability expectations, a drop of 13 points since the last quarter. Their perception of the business environment has improved slightly but continues to be a negative at -36%.
The sales situation for retailers also remains bleak at minus 23%. The sales expectations of retailers for the next 12 months have dropped from -15% to -23%.
On a more positive note though, SMEs are showing more of an appetite for investment than they had in the previous quarter, with both current and future investment figures showing an increase to 26% and 23%. These indicators are showing a very positive trend and represent the optimistic feeling within the SME sector. Even retailers are posting an increase in investment in their businesses.
Measures to assist recovery
The main issue for all sectors is the availability of bank finance to fund the investment proposals and this situation will continue to hold back the nascent revival of the economy unless the government maintains a strong push on the rescued banks.
The association has called on the government to assist the recovery by:
• Reducing government influenced business costs to below the EU average.
• Tackling the banking crisis to ensure real and measurable access to credit for viable SMEs.
• Outsourcing more state sector services to SMEs
• Reforming the social welfare system to make it more profitable to work
• Expanding the export capacity of the SME sector through soft supports
• Supporting micro business through the County and City Enterprise boards, without interference from
• Attacking the scourge of ever-increasing black economy activity.
In conclusion, Fielding reiterated the call for restraint both by government in the Budget and by employees in
their wage expectations. "It is of the utmost importance that the fragile revival in the economy is nurtured and
that there is a continued acceptance that there is still a long way to go. The softening of austerity must not be a
signal to the trade union movement to slap in wage claims. The economic realities of Ireland post-troika must
be understood and government, employers and employees must be prudent, productive and continue to work
on the economic revival," he said.