14/01/2009 Irish businesses anticipate deflation for first time in history of the Republic

PRESS RELEASE
14 Janaury 2009

Irish businesses are expecting price deflation this year for the first time in the history of the Republic, according to major new international study.

The last time the country experienced falling prices was in 1946 as a result of the fall-out from the second World War.  Irish privately held businesses (PHBs) are the most pessimistic in Europe and anticipate overall price deflation of almost 1.5 per cent in 2009.

Even excluding construction, Irish firms expect prices to fall by 0.5 per cent over the course of the year with manufacturing being particularly badly hit with price deflation of more than one per cent.

The results come from the Grant Thornton International Business Report which surveyed more than 7,200 PHBs across 36 economies.

It shows that businesses across the world expect weak increases in exports, limited opportunities to increase turnover and prices but only a marginal drop in profitability over the next 12 months.

The expectations in Ireland, however, are much more stark with Irish PHBs anticipating a serious decline in both turnover and profitability.  Regionally, the EU emerged as the gloomiest trading bloc in the highly respected survey with regard to turnover, with a balance of just +5% expecting turnover to rise, compared to the most positive, Latin America, at +30%. When asked about expectations for exports, however, the EU is the most optimistic at +11%, with Asia Pacific the most pessimistic, expecting no change from 2008. But, yet again, Irish businesses surveyed by Grant Thornton are fearing bad news across nearly all key indicators. 

A total of 22 per cent of Irish PHBs expect profits and turnover to increase in 2009.  Just one in five PHBs anticipate a rise in selling prices. Against this, 40 per cent expect turnover to decrease, 31 per cent anticipate a reduction in selling prices and almost half of all businesses (46 per cent) predict that their profits will fall. The only positive as far as Irish businesses see it is an anticipated rise in exports with a balance of +7 per cent.

“It will come as no surprise that Irish privately held businesses are predicting a tough year with approximately four out of five expecting turnover, selling prices and profits to decrease or remain the same in 2009,” said Patrick Burke, head of PHB at Grant Thornton.

“But the fact that they’re anticipating deflation is exceptionally serious. The last time Ireland experienced price falls was more than 60 years ago and in the wake of the Second World War when the end of hostilities led to increased supply and an understandable natural fall in prices.

“Turnover is driven by domestic sales and exports both of which are impacted by consumer demand and investment levels at home and abroad. Despite the generally negative results of the survey it is still difficult not to conclude that PHBs in many economies have yet to feel the full force of the global downturn and may be in for a shock. PHBs in 26 out of 36 economies surveyed, including many in the EU, expect their exports to rise, but with the largest importing economies contracting, the question is where those export markets are going to be found.

“Even Irish businesses expect their exports, overall, to rise in 2009.  Again, with the Euro having increased significantly against sterling over the past 12 months it is hard to work out the source of this optimism,” concluded Patrick Burke.

The Grant Thornton International Business Report is an annual survey of the views of senior executives in privately held businesses all over the world. Launched in 1992 in nine European countries the report now surveys over 7,200 PHBs in 36 economies providing territory, regional and global trend data on the economic and commercial issues affecting a sector often described as the 'engine' of the world's economy. Data for eight key industry sectors will be available for the first time in 2009. The research is conducted by Experian Business Strategies Ltd. Grant Thornton International donates US$5 to UNICEF for every completed IBR questionnaire, a donation of over US$39,000 in 2008.

To find out more about the International Business Report, please visit: www.internationalbusinessreport.com