SME environment remains broadly positive, but no room for complacency

The DKM/BPFI SME Market Monitor is a quarterly publication commissioned by the Banking and Payments Federation Ireland (BPFI). The purpose of the Market Monitor is to present up-to-date trends across a range of indicators which are important for the performance of the SME sector.

In the latest monitor, the majority of indicators tracked are encouragingly positive. The Industrial Production Index recorded a monthly increase of 1.3% in July, with a particularly strong increase in output in the Modern sector (+5.3%). There was also particularly strong growth in the Services Index in July, with monthly and yearly value growth of 6.9% and 10.1% respectively. The positive movement in the indicators can be attributed to the healthy pace of growth in the domestic economy, supported by the strength of domestic demand. Modified total domestic demand, which excludes the activities of multinational companies, totaled €43.5 billion on a seasonally adjusted basis, with quarterly growth of 4.5%.

The publication of the Q2 2017 National Accounts also showed that, for the first time since Q1 2013, personal consumption fell by 1.1% on a quarterly seasonally adjusted basis. Such a drop was primarily due to the notable fall in the level of car sales in Q2 2017, with consumers opting to take advantage of a weak Sterling to make their car purchases in Northern Ireland, therefore causing domestic car sales to decline.

There were also mixed signs from the latest Retail Sales Index. Although the Index recorded a notable annual increase of 4.7% in August, the Index did fall on a monthly basis by 4.2%. When car sales are excluded from the Index expands on an annual and monthly basis by 6.7% and 0.2% respectively. The latest KBC/ESRI Consumer Sentiment Index fell marginally in August as households began reining in spending due to back-to-school costs and rising household costs. The August survey suggested that although consumers’ fears with respect to Brexit have eased to a certain extent, for the majority of consumers, their own personal finances had not improved with most consumers expecting no marked improvement in their household spending power in the coming year.

Uncertainty in regard to Brexit and the subsequent weak value of Sterling continues to affect the number of visitors coming from Great Britain (GB), with visitor numbers down by 3.1% in the quarter and by 8.6% YoY in Q2 2017. Visitor numbers from GB have been on a downward slope since Q2 2016, which coincided with the Brexit vote. Despite such falls, a total of 2.49 million tourists visited Ireland in Q2 2017, representing annual and quarterly increases of 3.8% and 1.8% respectively. There were also significant annual increases in visitors coming from North America (+22.9%) and Europe (+8.3%). The aftermath of the Brexit vote also continues to affect the Food Production Index, as output in the industry has now fallen in five of the last six months.

Nonetheless, at this point in time, the economy continues to perform well in terms of increased domestic demand, positive SME lending and production levels. However, given the unpredictability of these global factors, it is difficult to know whether this shall remain to be the case and to what extent this could impact the SME environment in the medium term.

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