Solid growth in domestic activity supports SMEs, but international risks persist

The growing Irish economy is continuing to filter down to industries where SMEs tend to operate, according to the SME Market Monitor compiled by EY-DKM on behalf of the Banking and Payments Federation (BPFI). For example, the retail sector saw growth in sales when compared to the previous year, with considerably stronger year-on-year increases in the sale of furniture and lighting (+11.4%), motor sales (+9%) and electrical goods (+7.4%).


The latest Investec Manufacturing PMI in April saw a marked acceleration in the rate of growth in new business, while exports also expanded at a significant rate. Despite an above average rise in input costs, business confidence in the sector remains quite strong, with the 12-month outlook for production reaching a 38-month high.


There was also an encouraging performance from the accommodation and food service sector, with output expanding by 11.5%, while employment in the sector was up 8.8% on the previous year.


Therefore, while it is clear that the Irish SME market has experienced solid growth in the past year, the medium-term prospects are unclear given the ever-changing global environment, particularly given recent developments in the United States. By authorising the imposition of a 25% tariff on steel imports and 10% on aluminium imports from Canada, Mexico and the European Union, the US government has undoubtedly raised the prospect of a global trade war. Whether such a trade war comes to fruition remains to be seen, but the imposition of these trade tariffs by one of Ireland’s key trading partners raises the possibility of a more protectionist global trading environment in the medium term, an impact which will invariably affect an open economy like Ireland and thus the Irish SME environment.


In conjunction with this, slow progress of Brexit talks continues to create uncertainty about the future relationship of Ireland’s biggest trading partner, with continued exchange rate volatility being the likely factor in declining food production levels. That said, the likelihood of a “No Deal” scenario occurring, coupled with a potentially more protectionist trading environment globally, although very unclear at this moment, remains a possibility. Despite these global concerns, the current state of the Irish SME environment is quite positive.


The full report can be downloaded here.

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