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Solid domestic growth supports SMEs but international risks persist, according to SME Market Monitor

12th June 2018

The latest EY-DKM/BPFI SME Market Monitor, June 2018, prepared by EY-DKM Economic Advisory Services and published today by Banking & Payments Federation Ireland (BPFI), shows that the domestic environment for SMEs is positive, but concerns exist with regards to international factors.

Tracking trends across 15 different indicators which are important for the performance of the SME sector, the latest EY-DKM/BPFI SME Market Monitor shows that the majority of indicators tracked are encouragingly positive.  At the same time, the Monitor points to factors as Brexit and the prospect of a global trade war as presenting possible challenges in the medium term; and EY-DKM’s Annette Hughes notes this as well as the strong positives in her commentary:

“For 2017 as a whole, Modified Domestic Demand experienced solid annual growth, with much of this progress predominantly credited to a double digit increase in Gross Domestic Fixed Capital Formation. In a period of low inflation, Irish Households throughout 2017 saw modest increases in their disposable incomes, while labour market conditions continue to edge closer to full employment levels. Such favourable trends are reflected in the fact that the latest ESRI/KBC Consumer Sentiment Index shows further improvements in terms of consumer confidence, particularly with regard to households’ spending plans. That said, consumers were less optimistic with respect to their expectations for the Irish economy and their household finances over the coming year but nevertheless, the mood of the average consumer is one of guarded optimism.”

While domestic economic improvement is filtering through to Irish SMEs, future prospects for SMEs are unclear given the ever changing global environment:

By authorising the imposition of a 25% tariff on steel imports and 10% on aluminium imports from Canada, Mexico and the European Union, the US government has undoubtedly raised the prospect of a global trade war. Whether such a trade war comes to fruition remains to be seen, but the imposition of these trade tariffs by one of Ireland’s key trading partners raises the possibility of a more protectionist global trading environment in the medium term, an impact which will invariably affect an open economy like Ireland and thus the Irish SME environment.

In conjunction with this, slow progress in terms of Brexit talks continues to create uncertainty about the future relationship of Ireland’s biggest trading partner, with continued exchange rate volatility being the likely factor in declining food production levels. That said, the likelihood of a “No Deal” scenario occurring, coupled with a potentially more protectionist trading environment globally, although very unclear at this moment, remains a possibility.

The EY-DKM/BPFI SME Market Monitor can be viewed on the BPFI website here and on the EY website here.

 

Note: Banking & Payments Federation Ireland is the voice of banking and payments in Ireland, representing over 70 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

Contact: Annette Hughes, Director EY-DKM Economic Advisory Services, Ph: 01 6670372
Jillian Heffernan, Head of Communications, BPFI, Ph: 01 4748835 / 087 9016880

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