Rising costs are slowing business growth, but profitability is resilient

Nearly eight in ten businesses in Ireland and Northern Ireland are still stable or growing, but rising costs have slowed growth despite relatively buoyant sales and profits, according to the latest data InterTradeIreland business monitor.

A third of companies (34%) surveyed for the third-quarter study said they were growing, compared to 44%, which were stable and 21% were declining. In the third quarter of 2021, 41% of companies saw growth and 18% saw a decline.

In manufacturing, the slowdown slowed quickly, with just 32% of firms reporting growth, up from 47% a year earlier, while the number of firms closing contracts rose to 23% from 18%.

“There is a lot of uncertainty in the broader economy – with rising inflation, interest rates and a volatile energy market,” he said Martin RobinsonStrategy Director at InterTradeIreland.

“The road ahead seems to have a number of cautionary tales for companies. While the majority of the companies we speak to are in a stable position, in growth mode the number has fallen to just over a third, compared to 41% for the same period last year.”

When asked about quarter-on-quarter revenue, 24% of companies said it increased in the third quarter, compared to 56% who said it was flat and 19% who reported a decline.

Looking ahead, respondents were somewhat pessimistic about the next six months, with just 18% expecting revenue growth and 22% expecting a decline.

The leisure, hotel and catering sector started the winter months the most subdued, with 41% forecasting a decline in sales and 14% forecasting growth.

Growth InterTradeIreland
The majority of SMEs remain profitable, but growth is beginning to slow. (Image: Getty Images)

About 29% of companies in the construction sector expect sales to increase and 21% expect them to decrease, while 17% of companies in manufacturing and production expect sales to increase and 25% to decrease sales.

“Our data tells us that 90% of businesses have experienced a significant increase in their energy costs and this impacts almost half who have seen a large increase in supplier costs, while 44% have seen a significant increase in transportation costs,” said he Robinson.

“Regarding Brexit, 27% of companies reported it as an issue this quarter compared to 35% of companies in the previous quarter. Half of the companies say they have fully or largely adapted to the changes brought about by Brexit.”

The survey shows that 73% of companies have passed price increases on to their customers over the past 12 months and profitability has remained more or less stable as a result. In fact, there was a 10-point increase in profitability between Q2 (56%) and Q3 (66%).

Respondents also reported that cost increases have not yet hurt business and consumer confidence quarter-on-quarter, although it remains to be seen what will happen if companies continue to pass on price increases, as nine in 10 companies expect rising business costs to persist over the next 12 months .

“We know that companies that trade across borders tend to be more resilient. However, businesses across the island are operating against a difficult backdrop and their resilience will continue to be tested,” concluded Robinson.

“There are a number of business support offerings including InterTradeIreland. We will continue to work with partners and actively review our program offerings to ensure we can help businesses in the current challenging economy.

To find out how we can support your business and to take advantage of our wide range of initiatives, please visit www.intertradeireland.com.

(Image: Getty Images)


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