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Investment

Employment

Sentiment

Spending

Turnover

Cashflow

Collateral

Finance

Food

Accommodation

Construction

Retail

DKM/BPFI SME Market Monitor

Final Report February 2017

Prepared for the

Banking & Payments Federation Ireland February 2017

DKM/BPFI SME Market Monitor February 2017

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Introduction

This is the tenth 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 2013 4 , 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 21st February 2017. 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/

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Concerns about the impact of international factors may be affecting the SME environment

In the latest SME Monitor, the outturn for 2016 is becoming apparent from many of the indicators tracked, apart from a number of

the quarterly indicators which relate to Q3 2016. From the analysis to date, there appears to be an emerging concern about the

impact of international factors, notably Brexit and the new US President, on the Irish economy. That concern is evident from recent

trends in consumer confidence, notwithstanding a jump in January, the moderation in the volume growth in retail sales, increases in

input prices in the manufacturing, food and construction sectors, a decline in the number of tourists visiting from Britain and an

increase in the savings ratio. Meanwhile the economy registered further increases in employment and earnings and the construction

sector expanded in Q3 2016 at its fastest rate in twelve years.

One of the most relevant measures of activity in the domestic economy is underlying domestic demand, an indicator which the SME

Monitor has consistently recognised as being extremely important for the SME sector. The latest figures for Q3 2016 show that the

annual growth in Total Domestic Demand eased to 4.6% from 5.8% in the previous quarter. However, Domestic Demand continues

to be influenced by the changes in Intangible assets, which would be expected to have a negligible impact on SMEs. When these

assets are excluded from Investment, the corresponding annual figures for Domestic Demand show that it expanded by 14.4%.

A further positive development for SMEs is the record level of Total disposable income which reached €25.7 billion, surpassing the

previous peak set in Q3 2008. Consumer expenditure also increased in the quarter, having recorded a yearly and quarterly expansion

of 2.9% and 1.1% respectively.

However, 2016 has seen a consistent rise in the Gross Savings ratio, as savings surpassed the €3 billion mark in Q3 2016. The impact

of global factors is evident here, as this data would have taken into the account consumers anxieties in the aftermath of the Brexit

referendum, along with concerns about how the upcoming US Presidential election at the time might adversely impact the Irish

economy.

It seems international events continued to impact consumer behaviour in the final months of 2016, with notable quarterly and yearly

declines registered in the KBC/ESRI Consumer Sentiment Index during this period. Despite this, the opening month of 2017 saw

consumer confidence rise, as the index jumped from 96.2 to 103.1, possibly due to seasonal factor, while the sub-indices of current

economic conditions and consumer expectations were also up. The final month of 2016 saw the Retail Sales Index, with and without

motor trades, register monthly declines of 0.7% and 2.7% respectively. That said, both indices registered annual increases in 2016,

equivalent to 5.9% for all Retail Businesses and 4.3% when Motor Trades are excluded.

The latest Manufacturing PMI fell slightly in the month of January. Although the industry saw increases in employment and exports,

the rate of growth moderated compared to the previous month. Input cost inflation rose to its highest rate since October 2012, with

manufacturers citing higher commodity prices, the weakness of the euro/ US Dollar exchange rate and higher charges by UK suppliers

as the main reasons for this rise.

Predictably, the Food Production Index, was strongly affected by Brexit as the index was 4.1% lower in the last six months of 2016

relative to the same period in 2015. Taking the year as a whole, output in the industry was down by 2.1%. Irrespective of these

worrying performances, total employment reached 2.05 million in Q4 2016 as the SME sector continued to add jobs. The sectors

which are dominated by SMEs, namely Construction, Wholesale and Retail, Accommodation and Food and Real Estate, accounted

for 35% of the additional 65,100 jobs created in year to Q4 2016. The unemployment rate (SA) dropped from 9.1% to 7.1% over the

year, which equated to an annual decline of 41,300.

The Tourism Industry, which has been the jewel in the crown for the SME sector over recent years, continued to expand in the final

quarter of 2016. The number of tourists coming to Ireland rose steadily throughout 2016, with a total of 2.45 million overseas visitors

in Q4 2016. For 2016 as a whole, the total number of tourists visiting Ireland came to 9.61 million, representing an increase of 11.3%

on 2015. That said, the number of British tourists coming to Ireland has fallen in each of the last three quarters, which is primarily

due to the falling value of Sterling as a result of Brexit.

Overall, it is clear that in this latest assessment of the SME environment, several indicators have been impacted negatively by the

result of the Brexit referendum and the new US president, although the full effects of both have yet to emerge fully. This implies

there is no room for complacency and the Irish Government and SMEs need to monitor developments closely to ensure they are well

prepared for any eventuality.

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1. Sentiment Indicators

2. Macroeconomic Indicators

Figure 1: Consumer Sentiment Index

Source: KBC/ESRI

Increase recorded in January is the largest in seven months Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17

Monthly Index 102.7 102.0 97.3 97.8 96.2 103.1 Annual change 1.6 1.3 -3.9 -5.3 -7.7 -5.5 Monthly change 3.1 -0.7 -4.6 0.4 -1.6 6.9 3 mth moving average 101.9 101.4 100.7 99.0 97.1 99.0

Source: KBC/ESRI

There was a marked improvement in consumer confidence in January as the KBC Bank Ireland/ESRI Consumer Sentiment index rose from 96.2 in December to 103.1. Encouragingly, both the sub-indices of current economic conditions and consumer expectations were also up, with monthly increases of 9.2 and 5.4 respectively.

Much of the rise in the January reading can be attributed to seasonal factors such as post-Christmas sales or intentions to buy a new car, as the report estimates that about 75% of last month’s increase can be explained by these influencing factors. Another possible reason for the rise in January is that consumers are relieved that the election of the new US President has not immediately been followed by the widely feared economic and financial fallout.

Reassuringly for SMEs, the January sentiment reading indicates positive consumer spending growth, albeit with possible challenges such as the Brexit negotiations in the months ahead.

Figure 2: Manufacturing PMI (SA)

Source: Markit/Investec

Despite rise in input costs, manufacturing remains in expansionary mode Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 PMI (SA) 51.7 51.3 52.1 53.7 55.7 55.5 Monthly Change 1.5 -0.4 0.8 1.6 2 -0.2

Source: Markit/Investec

The Markit/Investec Manufacturing PMI fell slightly to 55.5 in January from 55.7 in December. Despite this decline, the January reading represented the sharpest rise in manufacturing output in 18 months. For the sixth month in a row, the level of new orders increased in Irish manufacturing firms, with the latest increase representing the largest rise since July 2015. The level of exports from Irish manufacturers did increase in January, albeit growth did ease relative to the previous month. Although the rate of job creation eased marginally from the previous month, January saw employment rise in the sector for the fourth month running. Input cost inflation rose to its highest rate since October 2012, with manufacturers citing higher commodity prices, the weakness of the euro/US Dollar exchange rate and higher charges by UK suppliers as the main reasons for this rise. Despite such increases, improvements in production, exports and employment should boost SMEs’ confidence. Figure 3: Domestic Demand SA (€m, constant 2014 prices)

Source: CSO, National Accounts

Domestic Demand deflated by the strong fall in intangibles assets Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Total Domestic Demand (SA) 43,089 42,470 44,240 43,225 45,426 44,624 QoQ % Change 2.3% -1.4% 4.2% -2.3% 5.1% -1.8% Final Domestic Demand (SA) 42,440 43,721 43,496 41,782 46,079 43,687 QoQ % Change 2.9% 3.0% -0.5% -3.9% 10.3% -5.2%

Source: CSO, National Accounts.

Having rebounded strongly in Q2 2016, both Total Domestic Demand and Final Domestic Demand (SA) fell on a quarterly basis by 1.8% and 5.2% respectively in Q3 2016. On an annual and non-seasonally adjusted (NSA) basis, Final Domestic Demand fell by 0.3%, whereas the growth in Total Domestic Demand eased to 4.6%.

Much of this quarterly fall is due to the substantial decline in Investment (-17.8%) while there was only marginal growth in Personal Consumption (0.7%) and Government Expenditure (0.8%). On an annual basis, Investment also fell significantly, by 7.2% (NSA).

The inclusion of intellectual property assets and the changes in aircraft leasing arrangements continue to distort Investment and therefore Domestic Demand. When these assets are excluded, Total and Final Domestic Demand both expand considerably, growing by 14.4% and 8.3% YoY respectively (NSA).

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3. Sectoral Indicators

3 Sectoral Indicators

Figure 4: Unemployment Rate (SA)

Source: CSO, QNHS

Downward trend in unemployment continues in Q4 2016

Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Rate (SA) 9.1% 9.1% 8.4% 8.3% 7.8% 7.1% Number (000s SA) 196.6 196.2 182.3 182 171.7 154.9

Source: CSO, QNHS

The unemployment rate (seasonally adjusted - SA) fell from 7.8% to 7.1% over the quarter in Q4 2016. Such a decline represented a drop of 2 percentage points when compared to Q4 2015. In absolute terms, such a fall equated to a quarterly drop of 16,800, while on an annual basis unemployment was down by 41,300. This decline is in line with the latest monthly data as the unemployment rate for January 2017 was 6.8%, down from 8.6% in January 2016. There were 148,200 people unemployed in January, which represented an annual decrease of 36,500 when compared to January 2016. Youth unemployment (ages 15-24) stood at 15.2%, which was a drop of 2.5 percentage points compared with January 2016. Such improvements with respect to unemployment should allow for greater consumer confidence and expenditure, which should subsequently increase the revenues and profitability of SMEs.

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

Source: CSO

Weekly earnings in small businesses are still 3.8% off their peak Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

Under 50 543.63 553.53 554.29 555.21 556.47 555.43 YoY % Change -0.7% 2.6% 1.7% 1.4% 2.4% 0.3%

50 - 250 659.76 667.63 653.32 658.51 656.98 655.40 YoY % Change 3.6% 4.2% 0.9% 1.2% -0.4% -1.8%

250 + 830.39 826.98 829.08 837.25 833.72 841.55

YoY % Change 0.1% 0.1% 0.0% 0.5% 0.4% 1.8%

Source: CSO.

Following annual growth of 0.6%, average weekly earnings across the economy increased to €707 or €36,760 per annum in Q3 2016. Despite this, overall earnings remain 1% off peak levels. Examining the data by business size shows that earnings in large companies, with 250 or more employees, increased by 1.8%, while earnings growth was also up in small sized companies, albeit marginally at 0.3%. Large firms seem to have finally recovered from the financial crisis, as earnings are only 0.2% off their peak level in Q4 2009. In contrast, Q3 2016 saw weekly earnings for medium sized firms decrease by 1.8%.

Figure 5: Household Disposable Income and Savings Ratio (€ millions, current prices) SA

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

International factors seem to have encouraged consumers to save more Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

Total Disp. Income 24,476 24,305 24,693 24,662 24,939 25,657 QoQ % Change 1.0% -0.7% 1.6% -0.1% 1.1% 2.9%

Consumption Exp. 21,656 21,986 22,193 22,695 22,391 22,630 QoQ % Change 1.1% 1.5% 0.9% 2.3% -1.3% 1.1%

Gross Saving 2,819 2,319 2,500 1,967 2,548 3,028 QoQ % Change -0.2% -17.7% 7.8% -21.3% 29.5% 18.8%

Savings Ratio 11.5% 9.5% 10.1% 8.0% 10.2% 11.8%

Source: CSO.

Having recorded moderate growth in the last quarter, total disposable income expanded by 2.9% in Q3 2016, reaching a new high of €25.7 billion, and surpassing the previous peak set in 2008. Consumer expenditure also expanded on a yearly and quarterly basis by 2.9% and 1.1% respectively, which will be encouraging for SMEs’ prospects. However, an increase of €709 million or 30.6% YoY allowed gross savings to surpass the €3 billion mark in Q3 2016. This equated to a savings ratio of 11.8%. Such a rise in savings may be due to consumers becoming increasingly anxious with respect to unfolding International events like Brexit and the upcoming US Presidential election at the time and concerns about how they might negatively impact Ireland.

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Figure 9: Overseas Trips to Ireland SA

Source: CSO

Visitor numbers from Great Britain down for the third quarter in a row Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Overseas Visitors (SA) 2.18 2.29 2.37 2.38 2.41 2.45 QoQ % Change 3.1% 5.2% 3.7% 0.2% 1.2% 1.8%

Source: CSO

SMEs ranging from hotels, B&Bs, restaurants, bars and retail outlets rely heavily on a strong tourism industry. The number of tourists coming to Ireland rose steadily throughout 2016, reaching 2.45 million overseas visitors in Q4 2016. For the year as a whole, 9.61 million tourists visited Ireland, representing an increase of 11.3% on 2015. Brexit seems to have negatively affected the number of visitors from Great Britain, with declines recorded in each of the last three quarters. That said, the number of tourists coming from Great Britain was up 11% in 2016 relative to the previous year. Similarly, visitors from Mainland Europe fell on quarterly basis by 2.5% in Q4 2016, but were up by 8.5% in the full year relative to 2015. Outside of Europe, the number of visitors from North America was up strongly in the final quarter (+17.9% QoQ), following an increase of 20.9% to 1.81 million in 2016. Visitors from areas outside of these, grew by 3.6% in Q4 2016.

Figure 7: Employment by Sector YoY % Change

Source: CSO, QNHS, not SA.

65,100 new jobs have been created over twelve months to Q4 2016 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16

All sectors 2.9% 2.3% 2.4% 2.9% 2.9% 3.3% Construction 13.3% 8.5% 7.8% 8.7% 7.3% 9.2% Wholesale and retail trade -0.5% 1.0% 0.7% 0.9% 1.9% 1.4% Accommodation and food 0.1% 4.1% 7.6% 6.7% 9.5% 3.4% Real estate 14.6% -17.6% -11.7% -10.2% 0.0% 22.4%

Source: CSO, QNHS, (NSA).

Labour market conditions continued to improve in 2016, as total employment reached 2.05 million in Q4 2016. Of the 65,100 new jobs created over the 12 months to Q4 2016, 35% have come from the four sectors with the greatest concentration of SMEs, highlighting the importance of SMEs to the labour market. The largest individual share can be credited to the Construction sector, accounting for 18% of the new jobs created in the last year. The rate of decline in Real Estate employment growth seems to have bottomed out in Q3 2016, with employment in the sector subsequently expanding by 22.4% YoY in Q4 2016. The Construction sector also recorded notable annual growth, up by 9.2% in Q4 2016. Employment in the Accommodation and Food sector was up by 3.4% on an annual basis, while Wholesale and Retail Trade employment increased by 1.4% YoY.

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

Source: CSO

Retail sales index has fallen in four of the last five months Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

Retail Sales Index 119.6 113 112.8 112.5 114.5 113.7 MoM % Change 13.9% -5.5% -0.2% -0.3% 1.8% -0.7%

Index ex. Motor 114.6 114.8 115.8 115.6 119 115.9 MoM % Change -0.3% 0.2% 0.8% -0.2% 3.0% -2.7%

Source: CSO

After recording substantial monthly growth of 13.9% in July, the Retail Sales Index has fallen in four of the last five months. The index excluding Motor Trades registered monthly declines in two of the last five months. However, both indices registered annual increases in 2016, equivalent to 5.9% for all Retail Businesses and 4.3% when Motor Trades are excluded. With the exception of sales in Non-Specialised Stores (+0.9%) and Foods Products (+0.6%), all other retail sectors recorded monthly declines in sales in December. Some of the most noteworthy falls were recorded for Electrical Goods (-22.7%), Hardware, Paints and Glass (-4.1%), Automotive Fuels (-2.4%) and Department Stores (-2.2%). The remaining categories recorded percentage decreases of less than 2%.

Figure 7: Employment by Sector YoY % Change

Source: CSO, QNHS, (NSA).

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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.

2016 finishes with a double-digit fall in manufacturing output in December Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Manuf. Industries 176.7 154.4 165.9 161.2 186.5 164.2 MoM % Change 6.7% -12.6% 7.4% -2.8% 15.7% -12.0%

Traditional sector 120.7 121 126.6 119.5 122.7 121 MoM % Change -1.6% 0.2% 4.6% -5.6% 2.7% -1.4%

Modern sector 206.7 165.1 185.7 187.2 214.6 191.5 MoM % Change 11.4% -20.1% 12.5% 0.8% 14.6% -10.7%

Source: CSO

The Industrial Production Index tends to display significant volatility from month to month and December was no exception. After recording significant growth in the previous month (+15.7%), the index fell significantly in December (-12%). Having fallen by 20.1% in the month of August, the Modern sector rebounded strongly in September (+12.5%) and November (+14.6%), before falling by 10.7% in the final month of the year. Monthly declines in Chemicals and chemical products (-24.6%) and Electrical equipment (-6.7%) predominantly contributed to the December fall. The Traditional sector also fell on a monthly basis by 1.4% in December, following a very volatile year relative to the Modern sector.

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

Source: CSO

Services Index unchanged following mixed performances from sub-sectors Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Services SA 125 124.8 125.2 125.9 127.4 127.4 MoM % Change 1.0% -0.1% 0.4% 0.6% 1.1% 0.0% W&R & Motor Trade 134.8 126.2 126.2 128.4 130.8 129 MoM % Change 7.5% -6.4% 0.1% 1.7% 1.8% -1.4%

Source: CSO. Index covers non-financial traded services. This index covers all enterprise with a turnover of over €20m and more than 100,000 persons engaged.

Having recorded a reading of 127.4, the Services Index remained unchanged in December on the previous month. The index has been generally trending upwards in 2016, only declining three times during the year, whereas relative to 2015, the Index was up by 5.5%. The easing of monthly growth can be explained by the mixed performances in terms of the sub-sectors. Food & Beverage service activities (-4.8%), Wholesale Trade (-3.2%), Accommodation (-0.6%) and Transportation & Storage (-0.3%) all registered monthly declines, whereas Administrative and Support service activities (+3.2%), Information and Communications (+0.7%) and Professional, Scientific and Technical activities (+0.3%) were up on a monthly basis.

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

Source: CSO

B&C Production Index is now growing at its fastest rate since Q3’04 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

All Building and Construction 105.6 108 110.3 117.1 125.7 129

QoQ % Change 3.7% 2.3% 2.1% 6.2% 7.3% 2.6%

YoY% Change 7.8% 10.7% 8.9% 15.0% 19.0% 19.4%

Source: CSO

The B&C Production Index expanded by double digit figures for the third quarter in a row, with Q3 2016 recording a strong annual expansion of 19.4%. This is the fastest annual growth rate since Q3 2004. When Civil Engineering is excluded from the index, this annual growth expands to 29.5%. Of the three sub-sectors that make up the B&C Production Index, Residential building registered the largest annual increase (+30.8%). Non-Residential building was also up on a yearly basis, by 27.8%, while Civil Engineering was the slowest growing sub-sector, having recorded an annual increase of 8.7%. Although it was the third month in a row that the Ulster Bank Construction PMI signalled a slower pace of expansion, the latest survey for January reported a near-record rise in employment as companies responded to greater workloads.

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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 considerably higher in the first nine months of 2016 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16

Total New Lending 556 450 500 487 720 539 YoY % Change 35.3% -0.2% -16.8% -3.0% 29.5% 19.8%

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

For Q3 2016, total new lending to SMEs amounted to €539 million, up 19.8% on the previous year. Encouragingly, the opening nine months of 2016 saw total lending rise to €1.75 billion, which represented an increase of €238 million or 15.8% YoY. This growth reflects an increasingly confident SME sector that is willing to borrow for investment purposes as the economy recovers. The manufacturing sector received the largest share of total new lending, accounting for 21.7%. Other sectors that also registered shares above 10% in this quarter included:

Wholesale/Retail Trade & Repairs (20.0% share of new lending) Hotels and Restaurants (11.9%) Business and Administrative Services (11.7%) Transportation and Storage (10.7%)

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

Source: Central Bank

Total outstanding debt for SMEs reduced by €1.56 billion in the last year Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16

Total Outstanding Debt 16,971 15,921 15,402 14,957 14,899 14,358 YoY % Change -15.3% -16.5% -18.1% -15.6% -12.2% -9.8%

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

Based on the above definition*, total outstanding debt accrued by SMEs came to €14.4 billion in Q3 2016. Although this represents an annual decline of €1.56 billion or 9.8%, the rate of debt reduction has been easing since the end of 2015. Ten of the twelve sectors under examination registered annual declines in the level of outstanding debt, with the highest absolute decline recorded by the Hotels and Restaurants sector (-€0.46 billion YoY). Other sectors to record notable reductions in debt were:

Wholesale/Retail Trade & Repairs (-€0.42 billion YoY) Manufacturing (-€0.21 billion YoY) Business and Administrative Services (-€0.19 billion YoY) Other Community, Social and Personal Services (-€0.10 billion YoY).

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

Source: CSO

Food Production in 2016 is down by 2.1% relative to previous year Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

Food products 134.3 140.3 155.4 137.1 139.5 131.2 MoM % Change -4.5% 4.5% 10.8% -11.8% 1.8% -5.9%

Source: CSO

The Food Production Index finished 2016 with a monthly decline of 5.9%. This fall is mainly due to poor performances across the sub-sectors, with declines recorded in Meat and Meat Products (-2%), Grain Mill and Starch Products (-4.9%), and Other Foods (-8.4%), (which include 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). Growth was recorded in Dairy Products at 8.2% and Bakery and Farinaceous products, albeit marginal at 0.8%. The index was 4.1% lower in the last six months of 2016 relative to the same period in 2015, which is probably due to the recent volatility in Sterling caused by Brexit.

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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.