Optimism about the economy has suffered a knockback as a result of Brexit, but concerns about wider economic prospects have come to the fore recently and are further depressing confidence levels among business leaders.

That’s according to the KBC Bank/Chartered Accountants Ireland business sentiment index, which dropped to 99.9 in the past three months from 117.7 in the first quarter — the sharpest fall since Q3 2010 — and brought the index back to its lowest level in three and a half years.

KBC and CAI conclude that, on the basis of the past relationship between the index and Irish GDP, the most recent survey still points towards “reasonably solid” economic growth in 2016. “However, it signals a clear easing in the pace of growth. The latest sentiment reading appears consistent with GDP growth of around 3.5-4%.”

While business activity has weakened only marginally, concerns about Brexit, coupled with broader uncertainties about global economic prospects, has caused a marked downgrading of the general business climate, with companies taking a more cautious approach in terms of their own future output and hiring.

Respondents have become notably less optimistic about Irish economic prospects of late, the authors say. Brexit is now regarded as the principal risk to prospects, cited by 40% of respondents. However, it is not seen as the only cloud in the economic sky. Slowing global demand is a significant concern. Perhaps more surprising is the continuing importance attached to domestic political uncertainty which was cited by 20% of respondents.

In Association with

Increased Risks

Arising from the Brexit decision, the weakness of sterling together with administrative difficulties in trading with the UK and potential relocation of activities out of Ireland are the most significant of many concerns in respect of our major trading partner.

KBC chief economist Austin Hughes commented: “The summer survey shows firms reporting continuing strength in their business volumes and hiring of late and forward-looking responses suggest this should continue, albeit at a more modest pace. On the basis of historic trends, the business sentiment survey appears consistent with a growth rate in Irish GDP of about 3.5% to 4% at present.”

Pat Costello of CAI said: “The drop in business sentiment to its weakest level in three and a half years should be seen as a broadly-based recognition of increased risks to Irish economic prospects rather than a sign of panic or any dramatic deterioration in current conditions. Notably increased uncertainty of late and the particular threats posed by Brexit have prompted companies to downgrade expectations for the general economic environment — but they continue to signal healthy growth in their own activities.”

The quarterly survey reflects the view of chartered accountants in senior positions in leading companies. The summer 2016 survey was conducted from 28 July to 11 August and the results are based on 321 completed responses.