Ireland’s two-tier economy fading as businesses outside Dublin catch up

By Business & Finance
08 June 2015
BDO frontage

Businesses outside the capital are fast closing the gap on their Dublin-based peers in terms of profitability, pricing levels and business optimism.

Increased prices and operating profit are being recorded in companies of all sizes in Dublin and in the rest of the country; 45% of all companies have recorded higher levels of business performance in Q1 2015 compared to the same period in 2014.

These are among the findings published in the inaugural BDO Optimism Index, a bespoke long-term study which surveys businesses in Ireland on what really matters to them.

Overall one in five businesses in Ireland, rising to one in four businesses in Dublin, are charging higher prices for their products or services compared to the same period last year. In addition to price increases, a further 65% of companies will maintain prices at the same level as last year and just 11% are planning on price reductions. Forecasts based on the data over the past five years suggests that price increases will continue in 2016 with one in four businesses expected to increase prices again in 2016.

The link between prices and profits is abundantly clear in the levels of operating profit being recorded. Over four out of every 10 companies in the larger company category are recording higher operational profits. When examined across all company sizes this drops to an average of 35%.

Over the past two years operating profit growth in Dublin based companies had far exceeded that of companies outside of Dublin but that has now changed and Ireland’s two-tier economy is rapidly fading.

The BDO Optimism Index, compiled with Behaviour & Attitudes using five years of data, gives an overall optimism score of 63.4. While this is a significant jump since 2012, the pace of growth in optimism is slowing as companies seek to consolidate their position and ensure longer-term sustainability.

While growth in activity is being experienced across the board, companies with four to nine employees have seen the most growth with 48% of them seeing an increase in business activity. Looking to Q2 2015, strong growth is predicated with over half of all businesses expecting business levels to be higher compared to the same period last year. Export focused companies are also more optimistic about their prospects with 54% of these expecting higher levels of business activity.

With unemployment falling steadily in the economy, the largest recruitment drive comes from the middle sized to larger companies with 30% of them adding to their work force since Q1 last year. Levels of recruitment were also similar in and outside of the capital with 18% of companies in Dublin and 15% of companies outside of Dublin seeing growth in employment levels in Q1 this year compared to Q1 in 2014.

Commenting on the findings, Michael Costello, managing partner with BDO, said: “The gap in the two tier economy finally seems to be closing with better results recorded for businesses outside of Dublin for a range of indicators, including operational profit and overall business optimism. This is hugely encouraging news for the whole country. Drilling down into some of the statistics, business growth is moving in the right direction, and growth figures for this quarter against the same period last year remain strong.

 The BDO Optimism Index, compiled by Behaviour and Attitudes, is based on recent business results, projected employment levels, profit margins and expectations for the forthcoming year of 350 business owners and managers countrywide.