NI Chamber & BDO survey: Tough trading conditions hit confidence and investment hard

• 69% of survey respondents believe prospects for the NI economy in 2021 are weak 
• 38% believe prospects for their own business this year are weak
• 35% of members plan to reduce capital investment
• Just 19% are completely confident their business can survive in spite of changing policy interventions

The latest Quarterly Economic Survey (QES) published today (12 January 2021) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and BDO shows that almost 7 in 10 members (69%) believe that prospects for the Northern Ireland economy are poor and that the economy will contract in 2021. The results come to light as the region grabbles with another strict lockdown period and new trading arrangements as a result of Brexit. 

The Q4 2020 findings suggest that trading conditions remain very challenging, with 37% of members still seeing little to no signs of improvement in their business performance since the pandemic (Q3 43%). Of those surveyed, 15% are planning to reduce staff numbers over the next year and 18% are planning to reduce staff working hours. 35% of respondents plan to reduce capital investment, while 1 in 5 plan to reduce work space in 2021.  

Around 1 in 5 members state that their business cannot survive continual changes in the government’s COVID-19 policy responses. Since the survey was carried out, new restrictions came into force which closed more sectors, including non-essential shops. In the intervening period, the Brexit transition period has also ended and practical arrangements continue to evolve.

Business Performance

Most key indicators improved, although Q4 suggests only a marginal improvement on Q3 and almost all key business indicators remain negative, meaning that there are still more businesses reporting worsening business conditions than those reporting any improvement. Most key business indicators also remain significantly weaker than before the pandemic struck. 

In Q4 2020, half of businesses experienced a fall in domestic (UK) sales over the last 3 months while just 19% saw an increase. The damage to exports is significant. Employment indicators are marginally better reflecting the role of the job retention scheme intervention in supporting jobs during the pandemic. 

In manufacturing, all key indicators continued to improve in Q4 2020, albeit it more slowly than in Q3. However, almost all key indicators remain negative. The sector’s order book is still weak, particularly in terms of export orders over the next 3 months. 

Almost all key indicators in the services sector also improved in Q4 2020 but all balances remain negative with more members reporting a deterioration in trade, jobs, confidence and investment intentions than those reporting any improvement. The services sector is showing slower signs of recovery than manufacturing, particularly in terms of domestic sales and orders. The sector’s cashflow position is weaker, as is confidence around profitability over the next year.

Responding to change

While trading conditions remain very challenging for 2 in 5 members, around 1 in 5 are making positive plans including taking on new staff, increasing wages and investing more in training. And while a sizable majority felt that prospects for the Northern Ireland economy overall were bleak, 46% believe their own business will grow in 2021.

Trading internationally

The survey indicates that members are increasingly concerned about external customer attitudes towards businesses in Northern Ireland. Half (51%) are concerned about Great Britain customer attitudes towards Northern Ireland businesses and 46% about Irish customer attitudes towards doing business in the region. Just over 1 in 10 members are concerned about accessing workers through the new UK Immigration Policy. In terms of the practicalities of new arrangements, the main concerns expressed centered on customs processes when purchasing from Great Britain (59%), along with potential disruption at ports delaying goods movements (51%).  Changes in the VAT regime are also an issue (49%). 

Commenting on the findings, Ann McGregor, Chief Executive of NI Chamber, said: “Quarter 4 was another difficult period for businesses in Northern Ireland, who continue to face challenges on an unprecedented scale.  If these results are the foundations for trade in 2021, then they are confirmation of another tough year ahead for many. The tighter coronavirus restrictions many businesses are currently coping with will weigh even more heavily on the key drivers of growth and indeed survival, in the months ahead.

“Given these conditions and the sentiments expressed, it is clear that business needs to see a clear support package from government for the whole of 2021, not just another incremental intervention. The current drip-feed approach to business support measures is too short term. The UK government must provide long term plans which allow businesses of all shapes and sizes to plan ahead.

“Our members have continually raised concerns around the practical implications for their business of the UK’s transition out of the EU including the region’s future trading relationship with Great Britain. Our concern is that the survey suggests that the pandemic has already taken its toll on how Northern Ireland trades externally and with the added complexities brought about by EU transition, that trade outside the region could be deeply impacted.   

“We need consistent, timely and practical advice on a 'real' time basis to make sure that trade is uninterrupted as far as possible and where there are issues and concerns, that they can be raised and dealt with urgently. Northern Ireland Chamber of Commerce and Industry is here to support that to happen.”

Brian Murphy, Managing Partner, BDO NI, said: “It is understandable that feelings of uncertainty and a lack of confidence about the year ahead dominated the business mind-set. It was afterall completed prior to the UK’s Trade Deal with the EU, and against a backdrop of expectation of further restrictions due to Covid-19.

“Whilst most key indicators have improved in Q4 (albeit at a slower pace than Q3) - they remain negative, meaning more businesses continue to report worsening business conditions than those reporting improvements. It is concerning that recovery slowed in Q4, with 49% of businesses experiencing a fall in domestic (UK) sales in the previous three months while only 19% saw an increase.

“Given the environment that businesses have been operating in, specifically over the last twelve months, it is unfortunately not a surprise that we continue to operate in the negative column. However, it is vital that we continue the momentum that has been building slowly and support companies across NI as we navigate yet another lockdown and the early stages of the new GB - NI trade arrangements. 

“As we continue to see the services industry recruit, or at least try to recruit, several factors are impacting on the long-term success of this recruitment plan, including of course the pandemic and access to the talent pool, due to changes in UK immigration policy and freedom of movement. 

“As expected, there have been significant problems since the Brexit transition period ended only a week ago, particularly around imports and exports from NI. The key Brexit related concerns raised by local businesses, including; customs processes in purchasing from Great Britain; disruption at ports; and VAT regime changes, have now materialised in reality. It is critical that companies be well informed of ongoing changes to operations, regulations and policy to allow for the transition to the new processes.

“It’s not difficult to understand why 69% of respondents believe prospects for the Northern Ireland economy are low in 2021, while 38% believe their own business prospects are actually poor for the coming year. How society, as well as the business community respond to this latest lockdown will play a key role for our overall prospects in 2021. However, the business community, has been through a lot in Northern Ireland, it is resilient, and we ask that the Executive continues to listen to what businesses have to say. We need to work together to get through this difficult time”.