1

Investment

Employment

Sentiment

Spending

Turnover

Cashflow

Collateral

Finance

Food

Accommodation

Construction

Retail

DKM/BPFI SME Market Monitor December 2015

Prepared for the

Banking & Payments Federation Ireland December 2015

DKM/BPFI SME Market Monitor December 2015

1

Introduction

This is the seventh publication of the DKM/BPFI SME Market Monitor, prepared for the Banking & Payments

Federation Ireland (BPFI)1. The purpose of this Market Monitor is to present up to date trends across a range

of indicators which are important for the performance of the SME sector2. With SMEs (employing less than 250

persons) accounting for the overwhelming majority of enterprises, 68% of persons engaged, 50% of turnover

and 46% of Gross Valued Added (GVA)3, their performance is very closely linked with the overall health of the

economy. How consumers feel about the overall state of the economy, their personal financial situation and

their ability to make purchases will influence the performance of SMEs. The level of confidence amongst

businesses is equally important, as the more confident business owners and managers are, the greater the

prospects for their companies, overall employment and incomes. They are also more likely to make investment

and purchase decisions.

In a report prepared for the BPFI in 20134, it was noted that the highest concentration of Irish SMEs are in

Accommodation and Food services, Construction and Real Estate activities, while the Motor and Wholesale

Trades as well as Professional, Scientific and Technical services also figure prominently in terms of

employment. A number of challenges have existed for SMEs following the unprecedented economic

adjustment over the past six years which hit many SMEs especially hard. While the environment remains

challenging, the return to more sustainable growth and trading conditions should ensure that SMEs remain

central to Ireland’s economic and jobs recovery.

This publication monitors a number of indicators that influence the circumstances under which SMEs conduct

their business. A total of 15 indicators, which are published on a quarterly and/or monthly basis, are presented

in tabular and graphical form with a brief commentary. This publication also contains a summary commentary

which seeks to bring an overall assessment of what these indicators are telling us about the environment for

SMEs. The indicators presented are grouped under four headings:

SENTIMENT INDICATORS

MACROECONOMIC INDICATORS

SECTORAL INDICATORS

LENDING INDICATORS

The data includes a number of the published sentiment indicators, including those from the ESRI, KBC and

Investec. Much of the macroeconomic and sectoral data comes from the Central Statistics Office while the

SME lending data is from the Central Bank of Ireland. Where data is known to be affected by seasonal

patterns, the CSO presents seasonally adjusted (SA) data which allow month on month (MoM) or quarter on

quarter (QoQ) trends to be analysed. The seasonally adjusted data can vary each month/quarter as new

observations are added and these changes will be reflected in subsequent issues of the DKM/BPFI SME Market

Monitor. Unadjusted data are analysed on a year-on-year (YoY) basis.

This publication appears in electronic on BPFI’s website: www.bpfi.ie and is available on www.dkm.ie.

1 This report is produced by DKM Economic Consultants. DKM was given editorial independence by the Banking & Payments Federation Ireland to prepare its views, analysis, forecasts and economic commentary on data and statistical trends related to the SME sector. The views expressed herein are DKM’s views and do not necessarily coincide with the views of the Banking & Payments Federation Ireland. 2 The data in this Monitor is based on data published up to 16th March 2015. 3 http://www.cso.ie/en/media/csoie/releasespublications/documents/multisectoral/2012/businessinireland2012.pdf 4 http://www.bpfi.ie/publications/sme-lending-market-in-ireland/

DKM/BPFI SME Market Monitor December 2015

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Many SME indicators rising while some have stabilised As we approach the end of 2015, the latest SME Market Monitor provides further evidence of an underlying

improvement in the range of indicators selected to monitor the economic environment for SMEs.

One of the most important indicators for SME firms, Domestic Demand, continued an upward trend in the first

three quarters of the year, with the quarterly value surpassing €42 billion (constant 2013 prices) in Q3’15 for the

first time since early 2008. Investment was the star performer in Q3’15 for the second quarter in a row.

Overall consumer sentiment reached a ten year high in November, reflecting the improving labour market and

healthier household finances. In the same month the PMI recorded a further solid strengthening of business

conditions in manufacturing, with new orders and exports up strongly, while firms also raised their staffing levels.

Although overall retail sales were marginally lower in the month of October, the ongoing recovery in consumer

spending and in the level of housing transactions is having a positive impact on sales in selected sectors. With the

volume of sales of Furniture and Lighting up 17.7 per cent YoY, ahead of the strongest retail sub-sector (Motor

Trades), it is evident that homeowners, both new and existing, are increasing their expenditure on home fixtures

and fittings. Although in the region of 57 per cent of the total output of both sectors represents imports

(according to CSO Input-Output tables), these sales generate wages and profits, a proportion of which is likely to

end up in the SME sector.

A further interesting measure of the extent of expenditure on home renovation and refurbishment works is

available from the Home Renovation Incentive (HRI) scheme for owner occupiers and investors. This scheme

attracted nearly €625 million worth of construction work by 6,341 contractors on 40,477 projects covering

28,911 properties since it was introduced across the country in Budget 20145. This is an average spend of €15,430

per project on renovation works which qualify under the scheme. Approximately two-thirds of the total

expenditure was in the Greater Dublin Area (GDA) while Cork accounted for 11 per cent of the total. The scheme

provides tax relief for home owners, by way of an income tax credit at 13.5 per cent of qualifying expenditure.

Combined with the bounce back in residential construction activity, a further increase in housing transactions and

disposable incomes should support private household spending on home renovations next year. This will further

sustain SME businesses both directly and indirectly suppling goods and services in this sector.

Other notable headlines to emerge include the consistent downward trend in unemployment from its peak rate

of 15.1 per cent in Q1’12 to its current level of 9.1 per cent in Q3’15, the lowest rate since Q1’09 – the rate

dropped to 8.9% in October. The related improvement in employment with an additional 11,500 persons at work

in Q3’15 compared to Q2’15 or 55,600 over the full year is further testament to the wider macroeconomic

performance, with the economy expected to record the fastest rate of growth in the EU in 2015.

Similarly, the Tourism sector’s performance was noteworthy, as Q3’15 recorded the highest number of overseas

visitors in any quarter since visitor numbers were first published by the CSO (Q1’08). Such news highlights the

success of the introduction of the 9 per cent VAT rate for the Tourism and Hospitability sector, which was retained

for another year in the 2016 Budget, and the impact of the weak euro.

The general focus of Budget 2016 appears to have been the income taxation measures. Elsewhere measures to

support new and existing entrepreneurs included the introduction of an Earned Income Tax Credit, the new CGT

rate of 20 per cent on the disposal of businesses while the three year tax-relief for certain start-up companies was

extended to the end of 2018. A set of further targeted tax incentives across a range of sectors, including micro-

breweries, as well as measures to incentivise electronic payments are expected to assist retailers.

5 Source: Office of the Revenue Commissioners.

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1. Sentiment Indicators

2. Macroeconomic Indicators

Figure 1: Consumer Sentiment Index

Source: KBC/ESRI

Figure 2: Manufacturing PMI SA

Source: Investec

Figure 3: Domestic Demand SA (€m, constant 2013 prices)

Source: CSO, National Accounts

Consumer confidence Index records a ten year high

June15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15

Monthly Index 102.8 99.7 101.1 100.6 101.3 103.1 Annual Change in level 21.8 10.3 14.0 7.9 15.7 17.8 Monthly change in level 44 -3.2 1.5 -0.5 0.6 1.8 3 Month moving average 100.0 100.3 101.2 100.5 101.0 101.7

Source: KBC/ESRI

The Consumer Sentiment Index rose to 103.1 in November from 101.3 in October with the index above 100 for the past four months, delivering the strongest reading of the consumer confidence since January 2006, when it recorded a figure of 106.2. Several factors are deem to have contributed to this improvement, such an improving labour market and healthier household finances. Encouragingly for SMEs, it seems there is now a reasonable degree of optimism amongst consumers. It must be noted that between October and November the buying climate recorded its weakest reading since November 2014, possibly reflecting cautious anticipation of Christmas spending. In terms of the component sub-indices, there were mixed results with respect to the sub-indices as the index of current economic conditions continued its downward trend since August, while the index of consumers’ expectations increased for the second month in a row.

New orders increased for the 29th

consecutive month June-15 July-15 Aug-15 Sept-15 Oct-15 Nov-15

PMI (SA) 54.6 56.7 53.6 53.8 53.6 53.3 Monthly Change -2.5 2.1 -3.1 0.2 -0.2 -0.3

Source: Investec

The seasonally adjusted Investec Purchasing Managers Index (PMI) recorded a slight decrease, as November registered 53.3, down from 53.6 in October. Regardless, Irish manufacturing firms increased their production during the month of November, extending the current sequence of growth to two-and-a-half years. The level signalled a further solid strengthening of business conditions in the sector, albeit the weakest in 21 months. New orders increased for the 29

th consecutive month

although the rate of expansion eased slightly from that seen in October. New export business also continued to grow sharply, with the rate of expansion similar to that of the previous month. Irish manufacturers also continued to increase their staffing levels in November. Taking these factors into account, such progress should bode well for SMEs supplying those firms. However, the increase in the minimum wage, as announced in the recent Budget, may lead to an increase in input costs for both Irish manufacturing firms and the SMEs supplying them.

Domestic demand surges ahead - back to 2007 levels in Q3 2015 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Total Domestic Demand (SA) 37,270 38,163 39,778 39,693 41,202 42,453 QoQ % Change 0.1% 2.4% 4.2% -0.2% 3.8% 3.0% Final Domestic Demand (SA) 37,125 37,777 38,958 39,064 40,924 41,569 QoQ % Change 0.4% 1.8% 3.1% 0.3% 4.8% 1.6%

Source CSO, National Accounts. (The difference between the two measures is the value of stock changes.)

Following a slight decrease in Q1’15, total domestic demand rebounded strongly in Q2’15 and Q3’15, increasing by 3.8% and 3.0% respectively. Final domestic demand also increased in Q2’15 and Q3’15 by 4.8% and 1.6%, reflecting the strong improvement in the Irish economy. As a result both surpassed the €40 billion (constant 2013 prices) mark for the second quarter in a row. The QoQ increase in investment (+4.9%) was the main reason behind the quarterly increase in domestic demand. Personal consumption was up slightly (+0.7%) in Q3’15, the seventh relatively modest quarterly increase in a row. The reductions in USC rates and the top marginal tax rate announced in the Budget should further improve these figures, especially personal consumption. These developments are good news for SMEs as approximately one half of the gross value added and 67% of employment generated by SMEs derives from SMEs who solely engage with the domestic economy.

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3. Sectoral Indicators

Figure 4: Unemployment Rate SA

Source: CSO, QNHS

Figure 6: Weekly Earnings by Size of Business (€) SA

Source: CSO

Figure 5: Household Disposable Income (€ millions, Chain linked to 2011) and Savings Ratio SA

Source: CSO. *Consumption Expenditure (CE) here excludes Government social transfers which are included in the CE definition for National Accounts purposes.

Ireland’s unemployment rate falls to its lowest since the first quarter of 2009

Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15

Rate (SA) 11.6% 11.1% 10.4% 10.0% 9.6% 9.1% Number (000s SA) 248.1 238.4 223.8 214.5 206.4 197.1

Source: CSO, QNHS

According to the Quarterly National Household Survey (QNHS), the seasonally adjusted unemployment rate has been on a consistent downward trend since it peaked in Q1’12 at 15.1%, falling to 9.1% in Q3’15. Unemployment has fallen by 41,300 in the year to Q3’15 (-17.3%), bringing the total number of persons unemployed to 197,100 (SA). This is the twelfth quarter in succession, in which unemployment has declined. With respect to long term unemployment, the rate decreased from 6.4% to 5.0% in the year to Q3’15. Looking at monthly data, the unemployment rate (SA) was 8.9% in November, unchanged from October 2015 but down from the 10.4% in November 2014. The number of persons unemployed (SA) was 191,700 in November, a decrease of just 700 in the month but a reduction of 32,100 when compared to November 2014. In November, there were just 2,200 fewer claimants on the Live Register compared with October, generating a total of 330,000 persons. The improving labour market under all measures should encourage greater consumer expenditure which should benefit the turnover of SMEs.

Household savings rate up YoY in Q2’15 to 12.9% (nsa) Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14

Total Disp. Income 22,735 22,927 22,958 23,331 23,350 23,406 QoQ % Change 2.5% 0.8% 0.1% 1.6% 0.1% 0.2%

Consumption Exp. 19,856 19,902 20,169 20,177 20,106 20,168 QoQ % Change 1.8% 0.2% 1.3% 0.0% -0.4% 0.3%

Gross Saving 2,878 3,025 2,789 3,155 3,244 3,238 QoQ % Change 8.1% 5.1% -7.8% 13.1% 2.8% -0.2%

Savings Ratio 12.7% 13.2% 12.1% 13.5% 13.9% 13.8%

Source: CSO

There were very modest changes in both household disposable income and consumption expenditure in Q4’14, in line with preceding quarters. In contrast, trends in the level of gross savings by households have been erratic, swinging from an increase of 13.1% in Q2’14 to an almost unchanged level in Q4’14. While seasonally adjusted figures are not available beyond Q4’14, the unadjusted figures, which are available up to Q2’15, show an increase in the savings ratio from 10.1% in Q2’14 to 12.9% in Q2’15. The increase over the year was equivalent to an additional €828m in household savings (+36.4%), made up of almost €1.5bn (+6.6%) in disposable income and €671m (+3.3%) in household consumption. The higher savings ratio implies household spending is likely to be lower than it might otherwise be, unless there is a substantial increase in disposable income this year.

Earnings in medium sized firms continue to achieve the highest growth rates Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15

Under 50 546.13 538.61 543.11 546.43 541.32 549.93 YoY % Change 0.8% -1.5% -0.7% 0.0% -0.9% 2.1%

50 - 250 618.47 629.99 638.64 645.39 653.54 653.05 YoY % Change -3.3% -0.3% 2.0% 4.5% 5.7% 3.7%

250 + 811.80 816.22 823.99 844.16 827.26 817.25 YoY % Change -2.0% 0.3% 0.1% 4.6% 1.9% 0.1%

Source: CSO

Weekly earnings are a useful measure of the performance of a company; as companies that perform better can afford to pay their staff more. Overall average weekly earnings, for Q3’15, fell marginally (-0.2%) when compared to the previous quarter, but increased by 2.1% YoY to about €696 or €36,185 per annum. Average earnings were up by 1.9% in the first nine months of 2015 on the same period last year. Breaking the data down by size of firm, companies with less than 50 employees recorded an increase of 2.1% YoY in average weekly earnings, while the YoY increase was 3.7% for enterprises with 50 to 250 employees. With respect to large companies with 250 or more employees, earnings remained almost unchanged in Q3’15 following a marginal YoY increase of 0.1%.

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Figure 9: Overseas Trips to Ireland SA

Source: CSO

Figure 8: Retail Sales Volume Index (2005 = 100) SA

Source: CSO

Figure 7: Employment by Sector YoY % Change

Source: CSO, QNHS, not SA.

Rate of expansion in construction and real estate continues to ease

Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 All sectors 1.7% 1.5% 1.5% 2.2% 3.0% 2.9% Construction 3.5% 6.6% 12.6% 19.1% 18.4% 13.3% Wholesale and Retail trade -0.7% 0.7% 2.3% 0.9% 0.8% -0.5% Accommodation and Food 6.3% 1.5% 1.3% -1.1% -0.7% 0.1% Real Estate 2.2% 21.5% 38.4% 50.6% 39.1% 14.6%

Source: CSO, QNHS, not SA.

The improvement in the labour market continues to gain strength as employment increased by 56,100 in the year to Q3’15, to reach 1.98 million. In terms of the sectors that have the highest concentration of SME activity, Wholesale and Retail (-0.5%) was the only sector not to achieve YoY growth. However, the rates of YoY expansion in construction (13.3%) and real estate (14.6%) have moderated from the highs recorded over recent quarters. The employment changes in these four sectors contributed to over a quarter (27.6%) of the total YoY increase in employment. The poor performance in Accommodation and Food is surprising, given the healthy Tourism sector. The number of self-employed fell by -1.4% when compared to the previous quarter. However, the income tax credit of €550 for the self-employed, together with other measures to boost start-ups introduced in the budget, may improve this figure.

Retail sales index records an annual increase of 6.9% May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15

Retail Sales Index 105.5 99.5 113.0 108.0 108.0 107.1 MoM % Change -1.2% -5.7% 13.6% -4.4% 0.0% -0.8%

Index ex. Motor 109.7 109.4 110.6 111.3 111.7 111.4 MoM % Change -1.0% -0.3% 1.1% 0.6% 0.4% -0.3%

Source: CSO

The retail sales volume index decreased by -0.8% in the month of October 2015. Excluding Motor Trades, the Index also decreased in October but at a lesser rate (-0.3%). Although the volume of Motor Trades was almost unchanged in October, the annual increase was impressive at 15.9%. Despite poor MoM performances over the last 3 months, there were some positive developments with a number of individual sectors recording notable MoM growth rates, such as Furniture & Lighting (+3.8%), Bars (+2.1%) Clothing and Footwear (+1.0%) and Department Stores (+1.4%). However retail sales in other sectors were down, most notably Electrical Goods (-2.9%), Automotive Fuels (-2.2%) and Hardware, Paints & Glass (-1.3%). The overall annual increase was 6.9% for all retail sales. Reductions in USC charges and the retention of the reduced and standard VAT rates in Budget 2016 should boost consumer expenditure, which should improve SME prospects.

Highest level of visitors since data first collected in 2008

Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Overseas Visitors SA 1.89 1.90 1.95 2.06 2.11 2.16 QoQ % Change 2.0% 0.6% 2.7% 5.6% 2.4% 2.4%

Source CSO

The Tourism industry is vital for SME growth as many SMEs are active in the form of hotels, B&Bs, restaurants, bars and retail outlets. There were 2.16 million overseas trips (SA) to Ireland in Q3’15 which represented a QoQ increase of 2.4%. However, the most notable headline from the CSO release was that this was the highest number of overseas visitors recorded in any quarter since visitor numbers were first published by the CSO (Q1’08). Compared to the previous quarter, the number of visitors from Great Britain grew by 4.3%, with visitors from other European countries achieving the highest QoQ increase of 4.8%. The weak euro also led to greater numbers visiting from the USA in Q3’15 (+1.2% QoQ). If this trend is maintained over the remainder of 2015 and into 2016, this should further enhance the prospects for SMEs both in and supplying the Tourism sector. Confirmation by the government of the retention of the reduced 9% VAT rate for the tourism/hospitality sector should help sustain this strong performance into 2016.

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Figure 10: Industrial Production Index SA (Vol. 2010 = 100)

Source: CSO Methodological changes from Jan 2014 (reclassification of some service companies to Industry) and rebasing to 2010 from 2005.

Figure 11: Services Index (Value 2010 = 100, SA)

Source: CSO

Figure 12: Construction Production Index SA (Volume 2010 = 100)

Source: CSO

Modern sector continues to grow but traditional sector declines May-15 June-15 July-15 Aug-15 Sept-15 Oct-15 Manuf. Industries 134.6 130.5 143.1 143.3 140.9 146.3 MoM % Change -5.8% -3.0% 9.7% 0.1% -1.7% 3.8%

Traditional sector 126.7 123.3 133.5 125.7 125.2 124.5 MoM % Change 0.9% -2.7% 8.3% -5.8% -0.4% -0.6%

Modern sector 130.7 140 146.3 147.2 147.7 152.4 MoM % Change -12.0% 7.1% 4.5% 0.6% 0.3% 3.2%

Source CSO

The volume of production in the Traditional Manufacturing sector recorded a decrease of -0.6% in October, following declines of -5.8% and -0.4% in August and September respectively. In contrast, production increased in the Modern sector (+3.2%), making this the fifth consecutive month of MoM growth. This sector, which consists of a number of important technology and chemical sectors, was also up strongly in YoY terms (+24.5%) for the fifth month in a row. The overall volume of manufacturing output was higher in September (+3.8%); it increased by +18.2% in YoY terms. The introduction of a Knowledge Development Box in Budget 2016 to provide for a 6.25% corporation tax rate on profits arising from certain IP assets, which are the result of qualifying R&D activity, may encourage further investment in the Modern sector.

Service index records marginal decline for October May-15 June-15 July-15 Aug-15 Sept-15 Oct-15

Services SA 113.9 116.4 122.9 117.6 119 118.9 MoM % Change -0.7% 2.2% 5.6% -4.3% 1.2% -0.1% W&R & Motor Trade 122.2 120.9 124.1 118.4 120.1 120 MoM % Change 0.4% -1.1% 2.6% -4.6% 1.4% -0.1%

Source CSO. Index covers non-financial traded services. This index covers all enterprises with a turnover of over €20m and more than 100,000 persons engaged. W&R = Wholesale and Retail.

The Services Index is an output value index with 2010 as its base year. Following a downward trend during the first half of 2015, the performance of the service index has been quite mixed, with the latest release showing the index recording a marginal decline in the month of October (-0.1%). MoM increases were recorded in Food services activities, Administrative and Support services and Accommodation, equivalent to 7.1%, 1.7% and 1.3% respectively. However there were notable MoM decreases in key sectors such as Professional, Scientific and Technical activities (-1.9%), Wholesale Trade (-0.2%) and Information and Communication (-1.5%). When Motor Trades are included with Wholesale and Retail Trades, the monthly decline is almost unchanged. Residential building up 41% in first nine months of 2015 on same period in 2014

Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15

All Building and Construction(SA) 99.4 97.8 100 101.5 108.1 111.5 QoQ % Change 3.5% -1.6% 2.2% 1.5% 6.5% 3.1% YoY% Change 13.1% 6.4% 9.4% 5.7% 8.8% 14.0%

Source CSO, National Accounts

The seasonally adjusted volume of output in B&C recorded a QoQ increase of 3.1% in Q3’15, continuing the impressive growth of the previous quarter. With the exception of civil engineering (-5.9%), all components of the Construction Production Index recorded YoY increases. For example, robust annual increases in all building (excl. civils of 16.5%) and most notably non-residential building (+36.2%) were recorded. Given the recent pressures being caused by a lack of housing supply, the annual improvement in residential building activity is very welcome, although the level of actual house completions only registered an increase of 11% YoY in Q3’15 to 3,289 units. Ulster Bank’s latest Construction PMI reported a marginal decrease in November. Despite this, the index which monitors activity in the construction sector pointed to an increase in activity, employment and confidence in the sector during the month of November. The reading for November of 55.5 remains well above the 50 breakeven level and indicates that firms continue to report widespread expansions. In terms of sentiment, optimism among Irish construction firms improved for the second month in a row, and was the third highest in the survey’s history.

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4. Lending Indicators

DKM/BPFI SME MARKET MONITOR

Figure 14: New Lending to SMEs (€m) and Rate of Change

Source: Central Bank

New lending to SMEs continues to expand at double-digit rates Q1'13 Q2'14 Q3'14 Q4'14 Q1'15 Q2’15

Total New Lending 367 411 451 601 502 556

YoY % Change 9.9% 55.7% 67.7% 32.7% 36.8% 35.3%

Source: Central Bank *Total lending ex Financial Intermediation, Real Estate and Primary Industry lending - see Note (1).

A total of €556m was provided by Irish credit institutions in new lending to SMEs* in Q2’15, representing a 35.3% increase on the same period in 2014. The Wholesale, Retail Trade and Repairs sector continued to be the largest recipient of new funding (30% of the total). This sector was followed by

Community, Social and personal services (15%), Transportation & Storage (13%), Manufacturing (10%) Hotels and Restaurants (10%).

Figure 15: Outstanding Debt (€m) and Rate of Change

Source: Central Bank

Outstanding debt of SMEs continues to decline

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2’15

Total Outstanding Debt 21,795 20,033 19,077 18,801 17,711 16,974

YoY % Change -4.9% -11.2% -14.4% -13.7% -18.7% -15.3%

Source: Central Bank *Total outstanding debt ex Financial Intermediation, Real Estate and Primary Industry lending - see Note (1).

According to the definition used here*, the total outstanding debt of SMEs to credit institutions amounted to €16.97 billion in Q2’15 as the downward trend in SME indebtedness continues. The level of outstanding debt accrued by SMEs was -15.3% lower in the quarter relative to a year earlier, and was down by -4.2% on a quarterly basis. Based on the 12 categories included in this analysis*, the outstanding debt levels fell across virtually all categories on an annual basis. The greatest absolute declines in debt were recorded in Hotels & Restaurants (-€1.16bn YoY), Wholesale/ Retail Trade & Repairs (-€756m YoY) and Construction (-€367m YoY).

Figure 13: Food Production Index SA (Vol. 2010 = 100)

Source: CSO

YoY growth is below 10% for first time in seven months

May-15 June-15 July-15 Aug-15 Sept-15 Oct-15

Food products 144 138 150.2 151.3 147 138.7 MoM % Change 0.4% -4.2% 8.8% 0.7% -2.8% -5.6%

Source CSO

Following the impressive months of July and August, when the volume index for food production rose and remained above the 150 mark, the index has recorded notable decreases in September (-2.8%) and October (-5.6%). The Index declined to 138.7 primarily due to poor performances across the sub-sectors, with a significant decline registered in the category of Other Foods (-9.3% - which includes the Processing and Preserving of Fish and Fruit and Vegetables, the Manufacture of Vegetable and Animal Oils and Fats, Sugar, Chocolate and Sugar Confectionary, Condiments and Seasonings and Prepared Meals and dishes and the Processing of Tea and Coffee), while Meat and Meat Products and Bakery and Farinaceous products only recorded slight increases of (+0.5%) and (+0.2%) respectively. This is also the first time in seven months where the food production index on an annual basis failed to register a YoY increase above 10%.

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INDICATOR SOURCE FREQUENCY SEAS ADJ.

Sentiment Indicators

1 Consumer Sentiment Index ESRI/KBC Monthly No

2 Purchasing Managers’ Index Investec Monthly Yes

Macroeconomic Indicators

3 Domestic Demand CSO National Accounts Quarterly Yes

4 Unemployment CSO Quarterly Yes

5 Disposable Income CSO Quarterly Yes

Sectoral Indicators

6 Earnings by Sector and Business Size CSO Quarterly Yes

7 Employment by sector (QNHS) CSO Quarterly No

8 Retail Sales Volume Index CSO Monthly Yes

9 Overseas Trips to Ireland CSO Quarterly Yes

10 Industrial Production Index CSO Monthly Yes

11 Services Index CSO Monthly Yes

12 Building and Construction Production Index CSO Quarterly Yes

13 Food Production Volume Index CSO Monthly Yes

Lending Indicators

14 Outstanding SME debt by sector Central Bank Quarterly No

15 New Lending to SMEs by sector Central Bank Quarterly No

NOTES (1) We exclude lending to financial intermediaries and real estate lending as these account for a significant

proportion of SME lending (as defined) but a relatively small proportion of SME economic activity. In addition we exclude the primary Sector (mainly Agriculture) from our analysis as the factors influencing that sector are arguably quite different to those affecting other SMEs. It should be noted that we have included lending to the Construction sector in our aggregate (unlike the Central Bank) as we believe that most of this lending is now for working capital in the construction sector and not for property purchase or development.