The latest ICAEW Wales Business Confidence Monitor (BCM) suggests weakness in the Welsh economy is affecting investment plans, as businesses continue to have a pessimistic outlook.
ICAEW interviewed sixty senior business professionals across Wales for its latest quarterly BCM Report, which recorded a Confidence Index score of -13.1 in Q3 of 2016, a significant drop from +22.3 recorded 12 months ago.
It is the second negative quarterly reading in a row and continues a downward trend.
Key findings of the report:
Confidence was on a diminishing trend before the Brexit vote and it dropped further in Q3
Domestic sales growth has been slow throughout 2016 and Q3 2016 export sales growth was the weakest since 2009
Capital spending growth is predicted to be close to zero over the year ahead, against a backdrop of falling confidence
The result of the EU referendum appears to have had some impact on confidence levels, however the downward trend has been present for some time.
Sluggish sales growth in Wales over the last 12 months is also having an effect. Domestic sales increased by 2.7% year on year in Q3 2016 and the pace throughout this year has been slower than was the case at any time during 2015. Export growth is particularly subdued this quarter; a 0.5% rise over the last 12 months is the most restrained performance since Q4 2009, when the UK was only just out of recession.
Alongside this, at 2.2% year on year in Q3 2016, profits are rising at their slowest pace since 2012 with a gradual squeeze on margins.
Martin Warren, ICAEW Director for Wales says:
“Although the EU referendum decision will have played a role in pushing Welsh business confidence down further in the current quarter, the underlying downward trend was already evident. Businesses across the country have reacted as you would expect them to in times of uncertainty. Time will help to rebuild confidence as businesses in Wales adapt and understand that the UK will still be in Europe for at least two years, as negotiations on Brexit terms take place.
“It is a concern that export growth is particularly subdued this quarter. Exchange rate changes are likely to have both a positive and negative impact on Welsh businesses. There may be new opportunities to export in all parts of Wales, helped by depreciation in the pound, which will make exports cheaper to non-sterling customers. However, this is countered by imports becoming more expensive for UK business.”