Retail, construction holding back recovery
143 companies in receivership already this year, up 142% from 2009
There are finally some signs that Ireland's economic recovery is underway but the retail and construction sector are still struggling, according to research by Ireland's leading trade credit insurer, Atradius.
The latest market monitor to be published by Atradius analyses the economy and predicts that there is both good and bad news ahead for Ireland with retail and construction remaining under pressure. Atradius is expecting an improvement in GDP but this is accompanied by a small increase in unemployment and corporate insolvencies totalling 1,800 cases - up from 1,409 in 2009
Stuart Ramsden, country manager of Atradius Ireland, said: "Domestic demand is anticipated to remain flat in the short term so any recovery for the Irish market is likely to be driven by exports. The relative weakness of the euro against both the US dollar and British pound should assist the Irish balance of payments, as large volumes of trade go to the US and UK."
Insolvencies are still rising, up by 22 per cent year-on-year in the first six months of 2010. Hardest hit were companies operating in the construction, services, hospitality and retail sectors, which collectively accounted for almost 75 per cent of the total so far this year, with construction accounting for almost 30 per cent of failures. Meanwhile, 143 companies have gone into receivership this year - a rise of 142 per cent year-on-year - suggesting that banks are adopting stricter loan collection methods in an effort to improve their own situation.
Retail in general remains under pressure, with rent and leases proving onerous for retailers as footfall decreases. Retail sales in Q1 of 2010 were 2.9 per cent down. Atradius , however, has seen signs that consumer confidence is returning and spending levels are increasing but this is being undermined by concerns over job security, personal debt reduction, cautious saving, higher taxation levels and lower wages.
The strains within the retail sector are evidenced by the 114 insolvencies within this sector up to July, up 10 per cent on last year. accounting for 12 per cent of the total so far this year.
Mr Ramsden said: "Until recently, VAT was lower in the UK, which drove thousands of shoppers to Northern Ireland, taking millions of spending value out of the Irish economy. Problems in retail can be seen in the number of new retail centres that have either been delayed or deferred until the economy picks up.
"Our experience with retail in Ireland has been mixed; we have seen some large insolvencies so far this year - 3G Mobile, Bestseller and Copper Alley to name a few - with many citing rent as the main obstacle to their ability to trade. Over the next six months, we see continuing high levels of insolvencies and many firms downsizing as consumer spending increases only slowly. Access to credit banking facilities is paramount to businesses' survival. However, moves are afoot to change the basis of rent reviews which, if passed, should assist this hard-pressed sector. Some of the tax changes in the recent UK budget, in particular VAT, will further deter Irish shoppers from travelling to Northern Ireland and thus help the Irish retail sector.
"We are advising that anyone trading in or with the retail sector to be aware of the warning signs which include a gradual slowing in payments and 'refer to drawer' cheques as these can often be an indication of financial difficulty," he added.
In the overall Irish economy, GDP decreased year-on-year by 0.7 per cent although this was 2.7 per cent up on the previous quarter. In the last year, capital investment declined 30 per cent while consumer spending is just short of one per cent lower. Net exports continued their surge, increasing 2,609 million year-on-year in the first quarter of this year.
The construction industry is continuing to contract with production volume and value declining in Q1 2010 by around a third. In the past two years, employment in this sector dropped by 123,000, accounting for 46 per cent of Irish job losses over this period. Figures from the Ulster Bank Construction Purchasing Managers Index indicate that the recession has now lasted three full years in the construction sector.
"Trading within the sector continues to be risky," said Mr Ramsden.
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