Most businesses in Northern Ireland are operating well, however inflationary pressures are starting to negatively affect performance and business confidence, according to the latest results from the Q2 2020 Quarterly Economic Survey.
Over 260 members responded to the survey from the Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisers BDO NI, representing over 22,000 jobs in Northern Ireland.
The results revealed that companies are generally positive about revenue growth in the next 12 months, with 52% expecting revenue to grow. However, this is down from previous quarters (60% in 1Q 22 and 70% in 4Q 21) and while still showing some signs of growth, the 2Q 22 findings suggest that business growth in the NI economy it is slowing down and confidence is declining.
More than half of respondents (55%) have seen some slowdown in demand for products and/or services. For 15%, this slowdown has been significant.
Inflationary pressures remain acute, affecting nine out of 10 companies. Raw material costs are an important factor for manufacturers.
In the second quarter of 22, labor costs also emerged as a strong driver for the manufacturing and services sectors, affecting twice as many members in the second quarter of 22 compared to the first quarter of 22. This is largely due to the challenges in recruiting staff. Rising utility and fuel costs are also key cost pressures.
Rising costs continue to raise expectations of price increases, which remain high among manufacturing and service companies. In the second quarter of 22, 83% of manufacturers and 75% of service companies expected to increase prices in the next three months.
The proportion of companies facing price pressure due to rising labor costs has almost doubled during the quarter, again affecting both the manufacturing and services sectors.
In the meantime, most members have some concerns about their cash flow position, but there is no strong sense that the ability to repay debt is an issue. In the second quarter of 2022, there was a slight improvement in cash flow balance (-17%) for manufacturers after a worrying drop in the first quarter, but it remains true that more manufacturers report a cash flow position deteriorating than those reporting some improvement. In services, the balance remains flat at +1%.
The Bank of England has recently signaled a potential risk of a recession in the UK because higher energy prices could push inflation above 10%. 91% of members who responded to the survey believe that the UK economy could slip into recession if current economic conditions persist.
Findings from the second quarter of 2022 suggest that more companies affected by the new trade agreements (three out of four) are adapting to the changes. In the second quarter of 22, 70% of those affected adhered to the agreements in their current form, compared to 52% in the same quarter of 2021, suggesting a considerable improvement. However, one in four members still find the new arrangements challenging.
66% say leaving the EU has negatively affected business costs and 54% the ease of doing business. 28% have stated that it has had a negative impact on their overall sales performance, while 19% have had a positive impact on sales. The impact on exports has been less pronounced, with 26% of members reporting a negative impact, against 22% reporting a positive change. 44% say that EU Exit has had a negative impact on their business in terms of the ability to access qualified staff.
Almost all key indicators remain positive, suggesting that there is still some growth in the sector. However, the balance of domestic sales is only +1% in the second quarter of 2020, which suggests that almost the same proportion of companies experience a contraction in sales as those who experience an increase. The export sales balance is positive (+8%) and is back to 2019 levels. Cash flow is the only negative indicator, while confidence around profitability is flat.
The recovery of the Services sector weakened in 2Q 22, reflecting a worse performance in the national economy. Almost all key indicators are positive, with the exception of confidence around profitability, which suggests that the sector is growing. However, most balances fell during the quarter except for export balances (which are low). The balance of domestic sales fell from +26% in 1Q 22 to +10% in 2Q 22.
In particular, NI’s export balances are positive and rank high relative to most other UK regions, some of which have negative export balances, suggesting a deteriorating export position in those regions.
73% of manufacturers (74% in Q1 of 22) and 58% of services (65% in Q1 of 22) were intending to hire in Q2 of 2022. Hiring difficulties remain a of the most persistent and growing concerns among members. In the second quarter of 22, 89% of manufacturers and 87% of services had difficulty recruiting staff.
Ann McGregor, CEO of NI Chamber, said: “While it is encouraging that most of our members traded positively in the second quarter, behind this, the results of the latest QES survey indicate a crystallization of the many challenges they currently face. . The reported slowdown in demand is a worrying indicator, and while we might expect some slowdown after the relatively strong rebound for many post-Covid, businesses are now facing an entirely different set of challenges that have been largely unanticipated. .
“Inflationary pressures are acute, affecting profitability not only in energy-intensive companies, but also among service companies. That inevitably leads to pressure to increase prices.
“While one in four companies continue to find challenges in post-EU trade deals, 70% are adjusting to the changes, up from 52% in the previous quarter. This suggests a considerable improvement on the arrays in their current form. Northern Ireland’s export balances under these current arrangements are also positive in contrast to some other UK regions, where balances suggest a deteriorating export position.
Brian Murphy, Managing Partner of BDO NI, explained: “Despite the uncertainties created in recent years by Covid and Brexit, 82% of respondents last quarter reported that they are operating positively post-pandemic, and 70% has also been adapted for publication. EU trade procedures. Considering the scale of the challenges, this is an incredible result and it certainly tells me that businesses in Northern Ireland have been making the most of the good morning.
“Unfortunately, the positive momentum that has been building in the economy will be much needed to mitigate the cost of living and cost of doing business that are affecting many, with 72% of businesses expressing cash flow concerns. and the impact of increased costs on the bottom line and 79% of companies expect to have to increase prices as a result.
“Companies at NI have already demonstrated their flexibility and innovative approaches in recent years, but there isn’t much they can do on their own. If we are going to weather a storm, we must work collaboratively with all stakeholders to help shape conditions that can support and protect local jobs and local businesses. The pandemic has shown us that we can all work together to achieve great things, despite the magnitude of the challenges. The challenges ahead have the potential to have an even greater impact on our economy than what we have faced in recent years, plus there may not be a quick fix and we have a long road ahead of us.
“In addition to businesses, employees, suppliers and banks, our Executive has an important role to play in continuing to use its influence in Westminster to make the right decisions on taxation, regulation, investment and, if necessary, financial intervention. Companies can prepare for rainy days; they can adapt to a changing climate, but they still need everyone to work together to help weather a storm.”