Business growth slows as cost pressures continue to impact
While still showing some signs of growth, the Q2 22 findings suggest that business growth in the Northern Ireland economy is slowing and confidence is waning.
The inflationary pressures that business currently face are so acute that 9 in 10 members are affected. These cost pressures now cover not just raw material costs but also labour, utilities and fuel costs. This is inevitably placing pressure on businesses to put up prices but also making businesses consider how to make efficiency savings too.
Almost all key indicators are positive meaning more businesses are reporting increases in sales, exports, jobs and confidence around turnover growth than those reporting a fall. The weakest indicators this quarter are cash flow and confidence around profitability. While more businesses are reporting increased UK sales (+32%) in last 3 months compared to those reporting falling sales (+25%), the domestic market performance has weakened this quarter. Around 1 in 2 member businesses are operating below capacity (47% vs. 52% Q1 22). Northern Ireland’s export balances are positive and rank highly relative to most other UK regions, many of which have negative export balances suggesting a deteriorating export position in those regions.
Businesses are generally positive about turnover growth in the next 12 months with 52% expecting turnover to grow, although this is notably down on previous quarters (60% Q1 22 and 70% in Q4 21). In part this could reflect the relatively strong recovery after the shock of COVID inevitably slowing down. Around 2 in 3 members are recruiting (64% vs. 67% Q1 22) continuing a softening in recruitment intentions in recent quarters. However, recruitment difficulties are extensive across the business community with 88% currently experiencing recruitment difficulties. This appears to be feeding into higher wages this quarter.
Inflationary pressures remain acute and 79% of members are expecting to raise prices in the next 3 months to deal with rising business costs. Raw material costs are a significant driver for manufacturers but in Q2 22 labour costs have emerged as a very strong driver for both the manufacturing and services sectors affecting twice as many members in Q2 22 compared to Q1 22. This is being driven in large part by challenges for many members in getting staff. Rising utility and energy costs are also key cost pressures.
In total, 264 members responded to the NI Chamber of Commerce & Industry Quarterly Economic Survey (QES), in partnership with BDO, for the 2nd quarter of 2022. Together they account for over 22,000 employees in Northern Ireland.
The fieldwork for the Quarter 2 2022 survey took place between 19 May – 7 June 2022. All COVID restrictions in Northern Ireland were lifted during this quarter. The war in Ukraine was officially confirmed on the 24 February 2022.
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