Business confidence in Wales has taken a dip in the last three months, according to the latest survey by the Institute of Chartered Accounts for England and Wales (ICAEW).
In the second quarter of 2012, its Business Confidence Monitor (BCM) Index fell from 5.7 to 2.4 according to the survey of 55 senior business professionals in Wales. It is now well below the optimism levels of the first half of 2010.
Turnover and export growth have slowed as has growth in gross profits while it is feared that Wales – where there is a heavy reliance on the public sector – will see an upward pressure on unemployment with a weak expected growth in jobs.
David Lermon, ICAEW director for Wales, said: “It is clear that confidence among business is fragile and businesses are holding back on investment because of their worries about the future. The optimism of 2010 has been replaced by nervousness and these are very challenging times for Welsh business.
“Employment growth has been static and businesses indicate that they are only expecting to grow jobs by under one per cent over the next year.”
Geraint Davies, Partner at Grant Thornton in Cardiff said:” The Welsh unemployment rate is 9 per cent compared with 8.1 per cent for the UK as a whole. With businesses adopting a ‘wait and see’ approach to investment, the already tough labour market could get even worse in the winter months.”
The key findings of the latest Wales BCM are:
Performance expectations fall back
Firms in Wales have seen performance on key financial indicators weaken recently, as the UK economy slid back into recession. Turnover growth has followed a downward trend from a high of 5.2% in Q3 2011 to 1.4% over the past year, its slowest growth since Q2 2010.
Gross profits and sales volume growth rates have also been falling back recently to their lowest levels since the first half of 2010, rising over the past year by just 0.7% and 1.5% respectively as firms in Wales face difficult economic times.
In line with continued low confidence, firms have been revising down their expectations for growth over the coming year. Turnover is expected to rise in the next 12 months by 1.7%, the slowest expectation since the end of the previous recession in Q2 2009. Expectations for gross profits and sales volume growth have also been tempered to their lowest since the first half of 2009.
Export growth slows in Wales
There are signs that the export performance of firms in Wales is being hit by current adverse economic conditions, with exports rising by just 0.8% over the past year. Export growth has been falling back recently from a high of 5.6% year-on-year growth in Q4 2011. Roughly 40% of goods exports from Wales are sent within the EU, a region troubled by economic crisis, while a further 30% are sold to the USA, where growth has also been slowing in 2012.
Expectations for export performance over the next 12 months have also been on a downward path recently among firms in Wales. Exports are expected to rise by 2.0% in the coming year, down from a high of 5.2% in Q2 2011. Weak growth prospects for the main trading partners of Wales, alongside slowing global trade volume growth, are likely to bear down on the export outlook for firms in Wales.
Tough labour market conditions continue
Employment prospects for workers in Wales have remained tough recently, with firms reporting headcount growth of 0.1% over the past year. This marginal growth follows fragile conditions in the labour market, including a contraction in staff numbers at the start of the year.
As a further illustration of the difficult environment, official statistics show the unemployment rate rising by 1.1 percentage points year on year in the three months to May. This takes the rate to 9.0%, well above the overall UK rate of 8.1%.
In addition, firms expect to increase employment levels by just 0.9% over the coming 12 months. Wales has the second highest public sector employment dependency rate in the UK, with 26.2% of workers employed by the state in Q1 2012; only Northern Ireland has a higher rate. This leaves the labour market particularly exposed to government cutbacks which, alongside weak expected private sector headcount growth, is likely to put further upward pressure on the unemployment rate.