Confidence among business professionals in Wales is continuing to grow after a turbulent year, according to the latest ICAEW UK Business Confidence Monitor (BCM).
Seventy senior business professionals in Wales were interviewed and recorded a Confidence Index score of 28.7 in the first quarter of 2010. The Confidence Index has risen in the last five quarters from a low of -52.2 in Q4 of 2008 as businesses have managed to plot a course through the stormy economic waters of the last year.
Welsh firms are predicting a growth in turnover over the coming year after a fall in the previous 12 months. The number of businesses facing potential cash flow problems has dropped with fewer firms than last year – when the financial crisis and economic downturn were at their worst – concerned about late payment from their customers.
David Lermon, ICAEW director for Wales, said: “Results show that confidence is beginning to rise after a hugely difficult year for business in Wales. The recovery is still very fragile and the outlook very bumpy.
“Turnover, profits and sales growth expectations have all moderated slightly since the last BCM, which suggests that Wales’ economic recovery may be more sluggish than originally anticipated.
“There will be set backs along the way and the general election has the potential to stall recovery depending on the decisions taken by the incoming government. While confidence continues to improve, the recovery needs very careful nurturing.”
BCM shows that in line with a steep rise in confidence, firms in Wales expect a significant improvement in the main indicators of business health over the coming year. After seeing turnover shrink by 1.4% over the last 12 months, Welsh firms now expect it to grow by 4.8% over the coming year.
Gross profits, which declined by 2.3% over the year to date, are forecast to rise by 4.4% over the coming year. Sales volumes are projected to expand by 4.8% over the coming 12 months following a 1.7% contraction over the last year.
While businesses in Wales are more optimistic about the growth of these financial performance indicators than firms in most of the areas of the UK, they are slightly less optimistic than they were in Q4 2009.
Welsh firms project stronger growth for their spending over the coming year than they experienced over the past 12 months. Staff development budgets are expected to increase by 2.7% over the next 12 months, having been cut by 0.7% over the last year. This is the strongest projection for growth of any area of the UK, having increased from a forecast of 2.0% in the last BCM.
The expected growth in staff development budgets is in line with expectations of a rise in the number of employees working for Welsh firms. Having cut headcount by 2.0% over the last 12 months, firms now expect to see a 2.2% increase in payroll over the next year. The latest forecast has increased from an average expectation among Welsh firms of 0.9% growth in payroll in Q4 2009.
This renewed optimism comes in spite of news of planned job cuts by Bosch, Toyota and Shop Direct, among others, in Wales.
The depreciation of sterling – to settle at around three-quarters of its value at the start of 2007 – has had a positive impact on prospects for the sale of Welsh goods and services overseas. Exports are forecast to grow by 5.5% over the coming 12 months, an improvement from expectations of 4.0% growth last quarter. This is the strongest projection for growth since Q3 2005 and equal to expectations in the last three months of 2007.
In line with Wales’ high Confidence Index, customer demand appears to be picking up for businesses in Wales. This quarter, four in ten business professionals (43%) report customer demand as a greater challenge to business performance than a year ago, down from 51% in Q4 2009 and 56% in Q2 2009. The proportion was above half in each of the previous five quarterly surveys.
The proportion of firms reporting access to capital as a greater challenge to the performance of their organisation declined substantially this quarter. One in six firms (16%) report access to capital to be a greater challenge to performance in Q1 2010 compared to a year ago. This is down from 31% during the same period last year. This finding is consistent with results from the Bank of England’s recent Credit Conditions Survey in which lenders reported reductions in spreads and fees in the latest quarter, the first such declines since Q2 2007.
This improvement was matched by a notable decline in the proportion of Welsh businesses suggesting they were facing potential cash flow problems. Just over a quarter (27%) of business professionals report late payment from customers as a greater challenge to performance compared to a year ago. This is down from 43% in Q1 2009, the worst period of the financial crisis and economic downturn.
Michael Izza, Chief Executive of the ICAEW, said: “The Business Confidence Monitor suggests firms are managing at the moment with less staff. That, coupled with the capacity that exists within the UK economy, suggests that expected improvements in economic performance won’t necessarily lead to significant job creation – the so-called ‘jobless recovery’. The sustainable business of the future will look more carefully at managing human capital to help build long term growth.
“In 2009, the focus for business leaders was on protecting their companies from the worst effects of the downturn. In 2010, they now need to concentrate on creating demand and driving orders to ensure their businesses return to full capacity.”
