Business confidence has been markedly eroded since the start of the year as high inflation continues to affect costs and consumer demand, according to the latest Accenture/S&P Global Ireland Business Outlook Survey.

Inflationary pressures have led to predictions of a fall in profits for the first time on record while expectations around employment and investment have also been scaled back, despite hiring intentions holding up in other European nations.

The net balance for business activity in the combined manufacturing and services sector fell sharply between February and June, from +55% to +24%, the second sharpest decline in expectations measured only behind Germany.

Overall, it is the least-optimistic annual outlook for activity recorded since October 2020 when the country returned to lockdown, and sentiment in the manufacturing sector is the lowest it has been since the global financial crisis.

Companies highlighted widespread concerns around inflationary pressures, with some now expecting a recession, and difficulties in securing materials and staff were also touted as key threats. Opportunities for growth were tied to new product developments and business developments by respondents.

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Net balances for staff (+78%) and non-staff costs (+66%) are broadly in line with the start of the year, and firms said they would increase output prices as they look to pass expenses onto the consumer, although the net balance dipped to +59% from the record high posted in the previous survey.

The outlook for profits has fallen to -7% from +25% in February, while the employment balance was broadly in line with the series average and above the European average at +24% despite Irish firms scaling back jobs plans and being less bullish across all sectors.

Investment expectations were also revised lower due to cost pressures and weakening optimism around business activity, with projections for capital investment being downgraded from +26% in February to +10%.

Manufacturing expectations for capital expenditure were barely positive, while the net balance for R&D spending was +9%, the lowest since October 2020.

“As we emerge from a turbulent two years, it is unsurprising to see the effects of global events reflecting in a more volatile business environment. However, there has been a remarkable amount of innovation and investment in the Irish business landscape, with hiring intentions in Ireland still the strongest in Europe," said Alastair Blair, managing director for Accenture in Ireland.

"The challenge for businesses now is to find ways to remain competitive through innovation, investment in technology and by having the best mix of skills, and investing in those skills, to deliver long term sustainable growth.”

Around 12,000 manufacturers and service providers were questioned for the study, including around 600 companies in Ireland.

(Pic: Getty Images)