Business confidence in Wales has slipped back into negative territory for the first time since the first quarter of 2011, according to the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM).
In the fourth quarter of 2011, the Business Confidence Index fell from 16.5 to -9.2 according to the findings of the survey of 66 senior business professionals in Wales.
But there was some good news with capital investment recovering in Wales over the last year, although that may be short-lived, according to business leaders.
David Lermon (pictured), ICAEW director for Wales, said:
“Business confidence in Wales grew in the last two quarters but it has now fallen back into negative territory. The impact of the Euro crisis, rising unemployment and public sector cuts are clearly having an impact and there are clearly concerns about the economic future and the possibility of a double dip recession.
“Consumer confidence is low and with energy, food and fuel prices biting hard business confidence is being affected as we head into 2012, which looks as if it could be another difficult year for many businesses in Wales.”
Geraint Davies, Partner at Grant Thornton in Cardiff said:
” Despite the slump in overall confidence in Wales, private sector employment is holding up and competition is easing as the worst-hit businesses have closed.
“The big challenge, however, will be getting the private sector to start absorbing the coming losses in public sector jobs.”
The key findings of the latest Wales BCM are:
Capital investment continues to grow
Firms in Wales increased turnover by 3.9% on average over the 12 months to Q4 2011. Turnover expansion has remained broadly stable since Q3 2010, suggesting business conditions have also remained relatively stable. Year-on-year growth in gross profits and sales volumes both stand at 3.1% in Q4 2011, also largely unchanged from levels seen since Q3 2010.
Likewise, expectations for growth over the next 12 months are stable, with an anticipated rise over the year from Q4 2011 for turnover of 3.9%, gross profits of 3.1% and sales volumes of 4.0%.
Capital investment has shown a recovery in Wales. Firms report increasing capital expenditure by 2.4% on average over the 12 months to Q4 2011. While the same as last quarter, this is the highest growth rate since Q1 2009. It also comes after a strong upward trend in 2011 following contractions in investment for much of 2010. This recovery may be short-lived, however, as firms expect to increase capital expenditure by just 0.2% over the coming year.
Private sector employment growth holding up
Employment creation remains in positive territory in Wales, as firms report increasing headcount by 1.5% on average over the 12 months to Q4 2011. This continues a positive trend in number of employees since 2010 when, on average, a reduction in headcount was reported.
The First Minister has announced a £75m scheme to create 4,000 short-term jobs each year for the next three years, aimed at getting unemployed young people into the workforce. The scheme will be available to those aged 16-24, a group badly hit by high unemployment, and they will be paid at least the national minimum wage for at least 25 hours a week.
Private sector employment growth may not be enough to counter public job cuts, however, as the unemployment rate in Wales reached 9.3% over July-September 2011 – up 1.3 point on a year before and compared with 8.3% for the national average. The Wales Audit Office suggests that 21,000 public sector jobs will be lost over four years.
Customer demand less of an issue
Fewer businesses in Wales appear to have issues with the level of customer demand than is the case in many other parts of the UK. Less than four in ten Welsh firms (37%) report customer demand to be a greater challenge than 12 months ago. This is down from almost half of businesses (48%) in Q1 this year and compares to up to 47% across the English regions in Q4.
At the same time, competition in the marketplace is also becoming less of an issue for firms in Wales. Fewer than one in three businesses (32%) report competition to be a greater challenge than 12 months ago. This continues a downward trend from nearly half of firms (45%) at the start of the year, with the current proportion the lowest since Q2 2009.
This suggests that either demand is returning and it is becoming easier for Welsh firms to find their market, or the level of demand is consistent but competition is weaker as some competitors have closed.
For further information please go to icaew.com/bcm
