Business sentiment improved sharply in the third quarter, according to the KBC Bank Ireland/Chartered Accountants Ireland Business Sentiment Index. The Autumn 2015 survey, conducted from Oct. 14-20, reflects the views of 363 chartered accountants working in senior positions in leading Irish companies.

The index increased to 130.8 from 123.6 in its previous quarter, showing its strongest reading since the survey began in late 2006.

There was a marked step-up in Irish business activity levels in the past three months, where more companies reported output gains and fewer reported reduced output than at any other time since the survey began.

Influential factors

The survey also included a number of supplementary questions, focused on Budget 2016 and its significance for corporate Ireland.

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Companies were asked how important they considered Budget 2016 for their business' outlook in the coming year, relative to other external influences. Their responses suggested budget measures are not generally regarded as the key determinant of business prospects for 2016.

Rather, they most frequently cited export market trends as most influential, along with cost trends and currency movements. This indicates companies see capacity to successfully buy and sell on world markets as the main driver of fortunes in corporate Ireland.

Commenting on the results, Chartered Accountants Ireland Chief Executive Pat Costello said firms are responding more confidently about the broader outlook for the Irish economy as a whole.

Growing cost base

“A continuing pick-up in business volumes has seen costs edge slightly higher for a rising number of firms, with 46% of respondents reporting their cost base had increased in the past three months," said Costello.

Costello continued to say this trend was most evident among domestically focused firms, such as those in the construction sector.

"It seems to reflect difficulties in scaling up activities at a sufficient pace to match rapidly recovering demand," he said. "In contrast, firms in areas such as manufacturing reported marginally less cost pressures of late.”

Austin Hughes, KBC Bank's economist, observed that 45% of responding firms reported increases in their payrolls in the past three months, while the number of firms reporting a decline in headcount increased to 11%.

"This may owe something to signs of emerging shortages of skilled staff in certain sectors, but it also likely reflects the ‘new normal’ in which some firms may remain under pressure even in a generally healthy business climate,” said Hughes.

While Budget 2016 is seen as relatively non-influential to the outlook of Irish business, Hughes said, 13% of survey respondents suggested measures introduced in Budget 2016 increased the likelihood they will hire employees in the next year.