Business performance in NI remaining steady but weak

After a significant drop across all indicators in Q3 22, business performance in Northern Ireland during Q4 22 remained steady, albeit at a very weak level.

That’s according to the findings of the latest Quarterly Economic Survey from NI Chamber and business advisors BDO NI.

Two in three businesses who responded to the survey stated that demand for their goods and services is falling, although for most (51 per cent) only a little.

Fifty-five per cent believe their business will grow in 2023, while 33 per cent expect it to contract.

Members are considerably less optimistic about prospects for the NI economy as a whole, with 68 per cent expecting it to contract in 2023.

Only 18 per cent expect the local economy to see some growth this year.

Most businesses are still trading well (31 per cent) or reasonably (49 per cent), however there are signs that businesses are not performing as well as the same time 12 months ago.

In Q4 22, 31 per cent of NI Chamber members said they were trading well, down from 40 per cent in Q4 21.

One in five reported finding trading conditions challenging, with 14 per cent just covering costs.

More members believe issues with the Northern Ireland Protocol can be resolved compared to this time last year.

In Q4 22, 49 per cent said they believed that the Protocol issues can be resolved in the coming year, compared to 39 per cent in Q4 21.

However, one in four members said they did not believe Protocol issues will be resolved this year.

Members continued to express concerns around their business profitability in the next 12 months.

Confidence around profitability plummeted for both sectors in Q3 22.

In Q4 22, the profitability balance remained negative in both the manufacturing and services sectors, meaning more businesses expect profits to fall in the next 12 months than rise.

However, in manufacturing this has improved significantly, up to -7 per cent from -26 per cent in Q3 22.

In services, the balance remained largely unchanged at -19 per cent compared to -18 per cent in Q3.

Investment intentions were mixed in Q4. In terms of training, the Q4 22 training balances remained positive, at +22 per cent (+17 per cent Q3 22) for manufacturers and +11 per cent for services (+16 per cent Q3 22).

Investment intentions around capital also improved for manufacturers, at +12 per cent in Q4 22 (+7 per cent Q3 22) but remained negative for services at -1 per cent (-3 per cent Q3 22).

Expectations to raise prices are highest on record for the services sector in Northern Ireland, ranking it highest across the UK regions.

While also still high for manufacturers, expectations have been falling since the start of the 2022.

Seventy-two per cent (81 per cent Q3 22) of manufacturers and 76 per cent (70 per cent Q3 22) of service businesses said they were expecting to raise prices in the next three months.

The inflationary pressures driving price pressures are acute, with nine in 10 businesses impacted.

Businesses are facing significant cost pressures in terms of utilities, labour and fuel costs and particularly for manufacturers, raw material costs.

The large quarter-on-quarter jump in the share of businesses under pressure from rising utility costs is notable, as is the greater pressure from rising labour costs.

Rising interest rates are also a growing concern. In Q4 21, 18 per cent of manufacturers and 25 per cent of service businesses were becoming more concerned about interest rates.

One year later, in Q4 22, this had risen to 51 per cent for manufacturers and 45 per cent for service businesses.

In terms of energy, four in five businesses have seen energy cost increases in excess of 30 per cent, up from 60 per cent in Q3 22.

Commenting on the survey findings, Ann McGregor, Chief Executive, NI Chamber, said: “In such a prolonged challenging environment, it is welcome to see that our members are not reporting material deteriorations since the last quarter.

“However, performance is still weak and business prospects around profitability have declined.

“In Q4, inflationary pressures continued to dominate, with members also expressing greater concern over interest rates.

“Rising energy costs should be a cause for alarm following the UK Government’s recent announcement that it will significantly scale back support for businesses at the end of this quarter.

“Despite the challenges, for a number of reasons 2023 is a year that Northern Ireland must target investment – seizing the opportunities presented in green growth, digitisation and international trade.

“Of course, as we know, the number one ask of any investor is political stability – one of the many reasons why we need to see an Executive restored and an agreed, workable outcome on the Protocol reached without further delay.”

Brian Murphy, Managing Partner, BDO NI, added:

“Looking ahead to a New Year can often provide business owners with at least some cause for anxiety, particularly after the events of the last year.

“However, it can also provide an opportunity to look again at your business’ performance, its structure and crucially, your plans for the future.

“We won’t overlook the fact that performance continues to be described as “weak”, but context is everything and when evaluated against the incredibly challenging environment it should be recognised that maintaining the status quo in terms of performance, staffing levels and recruitment must be seen as a win.

“It is heartening to see that two thirds of businesses expect to stabilise in 2023 with 55 per cent anticipating their own business to grow this year.

“Although many respondents are confident about their own business, they are less certain about others, with 68 per cent not feeling optimistic about the wider local economy.

“It is notable though that if their individual business aspirations come to fruition there should be, as a result, a direct impact on the wider economy, and we are encouraged by this potential.

“Although no one can say for certain what 2023 will bring, for businesses to succeed we must be aware of the challenges and be able to deal with areas of risk and concern, we must also use the opportunity a new year brings to plan and adapt for the future to ensure success.

“Proactive planning by business owners will be key to this success.

“We can make 2023 our year. The opportunities are there to make it happen.”