More than half of Irish companies will be less profitable this year as the global economic slowdown and rising domestic inflation impact negatively on costs and profits, according to a new survey.
The latest Irish Times/Ulster Bank survey of 100 businesses showed 70 per cent of Irish companies were under cost pressure, 42 per cent were losing sales in some markets and 57 per cent said they were more vulnerable to competition.
Some 55 per cent of businesses surveyed said they were likely to be less profitable this year with smaller firms being hardest hit, particularly rural companies in the manufacturing and construction sectors.
Sixty-one per cent of companies in the manufacturing/building and construction sectors said the combination of a global slowdown and rising inflation meant their businesses were more vulnerable to competition this year than last.
"This is a significant turnaround; after years of boom there is now a pincer movement where domestic costs are rising strongly and at the same time more than half of the businesses surveyed say they are more vulnerable to competition or are losing sales," said Mr Pat McArdle, Ulster Bank Head of Economic Planning.
This is the first time in about seven years that businesses expect a reduction in profitability and it confirms the slowdown in Ireland, he said.
The foot-and-mouth crisis compounded the negative impact for some companies. Twenty per cent of businesses said the disease and the resulting rise in food prices had a severely negative impact on their businesses, while 34 per cent said the impact was moderately negative and 44 per cent said it had no effect. Almost half of those surveyed continued to endorse the No vote to the Nice Treaty while 62 per cent felt the EU Commissions' criticism of Mr Charlie McCreevy's Budget was not justified. Larger companies were even more critical with 76 per cent saying the EU criticism was not justified.
When asked if they thought it influenced the vote on the Nice Treaty, two-thirds said no it did not have any big impact but 53 per cent of the larger companies surveyed thought it did. Less than half thought the ECB was doing a good job while 36 per cent thought it was not doing a good job.
There was a strong view that the ECB should cut interest rates with 61 per cent saying yes it should make further reductions to rates and just 29 per cent saying no.
Mr McArdle said this was not that surprising as business always wanted lower interest rates. When asked if they thought the UK would join the euro, 82 per cent of Irish business said yes. "This is surprising given the fluctuations in opinion in the UK," Mr McArdle said.
Seventy per cent of Irish businesses felt it would be positive for them if the UK joined the euro and only 4 per cent thought it would have a negative impact. Twenty-four per cent thought it would have no impact at all.
Mr McArdle contended that this was a rose-tinted viewpoint as the impact on Irish business depended on what rate sterling entered at. If the UK joined at the current high rate then that would boost Irish business in general. But most people think sterling is over-valued by 10 to 20 per cent. If sterling were to reduce Irish exports would be a good deal less competitive against the UK.
