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ICAEW Business Confidence Monitor (BCM): Wales

Q3 2019: Slowing exports and profits growth are hindering business confidence

Welsh company confidence remains negative in Q3 2019. Businesses report markedly slower exports and profits growth over the past year. Given this, issues with customer demand and marketplace competition are growing sources of difficulty. Against that backdrop, companies plan to moderate investment spending growth.

Business Confidence in Wales

The Business Confidence Index in Wales remains firmly negative for the fourth successive quarter, at -20.9 in Q3 2019. Overall company sentiment is doubtless being hampered by Brexit uncertainty, but the recent announcement regarding the closure of the Bridgend Ford plant in South Wales may also have damaged business confidence. 

Domestic sales and exports

The level of exports is similar to 12 months ago, with growth of just 0.2% in the year to Q3 2019. This is the slowest rate recorded in Wales since Q4 2009 and is likely to be impacting overall business confidence. However, companies are at least seeing stable domestic sales growth of 3.7%, similar to a year ago. 

Selling and input prices, and profits

Welsh companies are also struggling to achieve any substantial increases in selling prices, with a rise of just 0.9% year-on-year in Q3 2019. These continue to trail behind input price inflation of 2.3%. Given these price-cost factors and muted rises in exports, businesses report more modest profits growth in the year to Q3 2019 of 1.9%, than in the previous year (2.7%). This is one of the weakest rates across the UK.

Business challenges

Demand factors are key concerns for companies. In Q3 2019, Welsh businesses report growing concerns over marketplace competition (42%) and customer demand (37%), up from 37% and 23% a year ago. Labour market challenges are also apparent for businesses in Wales. The proportion of companies citing issues with the availability of management (30%) and non-management (34%) skills are both up from a year ago, possibly reflecting a fall in the unemployment rate in Wales to 3.9% in the three months to June 2019.  

Investment

Difficult conditions are reflected in the investment intentions of Welsh businesses for the coming year. Although in the year to Q3 2019 businesses increased their capital investment and Research & Development (R&D) spending by 2.2% and 1.4% respectively, these rises are set to be markedly more restrained in the year ahead. Indeed, R&D budgets are forecast to grow by just 0.6%, while capital investment expenditure is projected to grow at only 0.1%, so broadly unchanged from its current level. 

Prospects for the next 12 months

Businesses expect improved export growth of 3.1% over the next year. However, domestic sales projections have softened over the last year, with growth now forecast to be 2.5% in the 12 months ahead. The net effect of faster export rises and slowing domestic sales growth is that profits are predicted to expand at a similar rate to the past year (2.0%).