Retail and Construction hold back recovery in Ireland

(Dublin, 5th August 2010)

There are finally some signs that Ireland’s economic recovery is underway but the retail and construction sector are still struggling, according to research by Ireland’s leading trade credit insurer Atradius.

The latest Market Monitor to be published by Atradius analyses the economy and predicts that there is both good and bad news ahead for Ireland with retail and construction remaining under pressure. Atradius is expecting improvement in GDP but this is accompanied by a small increase in unemployment and corporate insolvencies totalling 1,800 cases – up from 1,409 in 2009

Stuart Ramsden, Country Manager of Atradius Ireland, said: “Domestic demand is anticipated to remain flat in the short term so any recovery for the Irish market is likely to be driven by exports. The relative weakness of the euro against both the US dollar and British pound should assist the Irish balance of payments, as large volumes of trade go to the US and UK.”

Insolvencies are still rising, up by 22% year on year in the first six months of 2010. Hardest hit were companies operating in the construction, services, hospitality and retail sectors, which collectively accounted for almost 75% of the total so far this year with construction accounting for almost 30% of failures. Meanwhile, 143 companies have gone into receivership this year - a rise of 142% year on year - suggesting that banks are adopting stricter loan collection methods in an effort to improve their own situation.

Retail in general remains under pressure, with rent and leases proving onerous for retailers as footfall decreases. Retail sales in Q1 of 2010 were 2.9% down year on year. Atradius has seen signs that consumer confidence is returning and spending levels are increasing but this is being undermined by concerns over job security, personal debt reduction, cautious saving, higher taxation levels and lower wages. The strains within the retail sector are evidenced by the 114 insolvencies within this sector up to July, up 10% year on year. accounting for 12% of the total so far this year.

Ramsden said: “Until recently, VAT was lower in the UK which drove thousands of shoppers to Northern Ireland taking millions of spending value out of the Irish economy. Problems in retail can be seen in the number of new retail centres that have either been delayed or deferred until the economy picks up.

“Our experience with retail in Ireland has been mixed; we have seen some large insolvencies so far this year - 3G Mobile, Bestseller and Copper Alley to name a few - many cited rent as the main obstacle to their ability to trade. Over the next six months, we see continuing high levels of insolvencies and many firms downsizing as consumer spending increases only slowly. Access to credit banking facilities is paramount to businesses’ survival. However, moves are afoot to change the basis of rent reviews which, if passed, should assist this hard pressed sector. Some of the tax changes in the recent UK budget, in particular VAT, will further deter Irish shoppers from travelling to Northern Ireland and thus help the Irish retail sector.

“We are advising that anyone trading in or with the retail sector to be aware of the warning signs which include a gradual slowing in payments and ‘refer to drawer’ cheques as these can often be an indication of financial difficulty.”

In the overall Irish economy, GDP decreased year on year by 0.7% although this was 2.7% up on the previous quarter. In the last year, capital investment declined 30% while consumer spending is just short of 1% lower. Net exports continued their surge, increasing 2,609 million year-on-year in the first quarter of this year. Meanwhile unemployment rose by 5,800 in June 2010, bringing the total out of work to 444,900; 13.4% of the workforce. However, the year-on-year rate of increase is slowing; down to 9% in the 12 months to June from 11.1% in May. In contrast, 18,200 new entities - limited companies and business names - were registered with the Companies Registration Office in the first half of the year, 9.6% up year on year which indicates that people are still willing to invest and start up businesses despite Ireland’s economic difficulties.

The construction industry is continuing to contract with production volume and value declining in Q1 2010 by around a third. In the past two years, employment in this sector dropped by 123,000 accounting for 46% of Irish job losses over this period. Figures from the Ulster Bank Construction Purchasing Managers Index indicate that the recession has now lasted three full years in the construction sector.

Ramsden said: “There were 277 insolvencies in construction for the year to July, accounting for 30%of the yearly total so far. With the large drop-off in activity, we see this trend continuing for the remainder of this year and into 2011.
“Trading within the sector continues to be risky. That is why we actively seek updated financial data on risks that we are asked to insure because, without this information, it is difficult for us to assess the buyer in question. Areas we look at include banking facilities, liquidity, asset management, profitability, projects in hand and cash flows.

“Year-on-year planning permissions for homes dropped 61% in Q1 and housing completions significantly down on pre-recession levels. We expect new build to remain low until the stock of completed units is cleared, banks start lending again and consumers believe that the property market has actually bottomed out. With cut backs in government spending, due to the budget deficit, we can see a number of infrastructure projected being put on hold and this will contribute to the difficulties the sector is experiencing.”

ENDS
Notes to editors

About Atradius:
Atradius provides trade credit insurance, surety and collections services worldwide, and has a presence in 40 countries. Its products and services aim to reduce its customers’ exposure to buyers who fail to pay for the products and services they buy. With a 31% share of the global trade credit insurance market, its products contribute to the growth of companies throughout the world by protecting them from payment risks associated with selling products and services on credit. With over 150 offices, it has access to credit information on 52 million companies worldwide and makes more than 22,000 trade credit limit decisions daily. For information about Atradius products and services visit www.atradius.co.uk

Further information:
Issued By : Golley Slater PR
Contact : Laura Windeatt or Emma Powell
Tel: 029 2078 6048
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Date:         
Ref:  LW/ATR/P/012