According to the latest Banking and Payments Federation (BPFI) SME Market Monitor, the upward trajectory of the Irish economy seems to have made consumers and manufacturers more confident. Although the outturn of Phase 2 of Brexit negotiations and changes in US tax policies may disrupt this growth, the SME environment remains considerably positive with policy announcements such as the National Planning Framework (NPF) and the National Development Plan (NDP) offering further opportunities for Irish enterprises, including SMEs. Given that the NDP commits €116 billion to upgrading the State’s infrastructure over ten years, SMEs should benefit either directly in the contracting phase, or indirectly from the provision of goods and services to firms directly involved in the delivery of projects.
The consistent improvement in the SME environment is evident from the positive developments in almost all of the indicators tracked in the monitor.
According to the latest KBC/ESRI Consumer Sentiment Index, consumer confidence fell back in February 2018 from its highest level in seventeen years but the January results likely reflected seasonal factors and it was still higher than at any point in Q4 2017. The latest results reflect an improving economy but modest income growth. Indeed, weekly earnings grew by only 2% year-on-year (YoY) in Q4 2017, while earnings in businesses employing few than 50 people fell by 3.8% YoY.
According to the Q3 2017 Labour Force Survey, employment rose to 2.2 million, implying that total employment is now at its highest level since Q3 2008. In Q3 2017, total disposable income rose to €25.8 billion, while in the year to Q3 2017, total disposable income amounted to €76.4 billion, up 5.4% or €3.9 billion on the corresponding period in 2016.
Continuous increases in disposable income and employment throughout 2017 have positively affected retail sales. The Retail Sales Index, with or without the motor trade, registered annual increases in 2017 equivalent to 4.3% for all retail businesses and 7% when motor trades are excluded. With the exception of motor trades, all retail sectors experienced an increase in sales relative to 2016, with the highest seen in furniture and lighting (+15.8%), electrical goods (+11.7%) and pharmaceutical, medical and cosmetic articles (+6.4%).
A total of 2.58 million overseas tourists came to Ireland in Q4 2017, representing a notable increase of 5% on the previous quarter, while annual growth was also up by 6.2%. For the year as a whole, 9.94 million tourists visited Ireland, an increase of 3.5% on 2016. For the first time since the Brexit referendum result, the number of visitors coming from Great Britain registered quarterly and yearly growth of 5.4% and 0.8% respectively. While this is good news for SMEs such as hotels, bars, restaurants and cafés, Brexit and the subsequent weak value of the Sterling have had an immediate impact on the Irish agricultural sector.
The level of debt accumulated by Irish SMEs continued to fall, reaching €12.5 billion in Q3 2017. This represented a decline of €1.7 billion or 11.9% YoY. Furthermore, the opening nine months of 2017 saw total new lending to SMEs rise to €1.97 billion, up 13% or €227 million on the corresponding period in 2016.
In summary, the Irish economy continues to grow strongly, with notable improvements in employment, production and consumption. Although this could change in the medium term, depending on the outcome of global risks, government infrastructure programmes from the NPF and the NDP should offer further opportunities to SMEs across the country. The BPFI SME Market Monitor can be downloaded here.