Economy and confidence

Measured optimism has been an enduring feature of this research since we began assessing leadership attitudes and CEO perspectives at home and abroad over the past decade.

However, the profound changes triggered by technology and shifting geopolitical sands are reshaping CEO attitudes about the future. We asked CEOs about their confidence in three-year growth in both the global and national economies.

In the Republic (ROI), 80 percent of CEOs said they expect global growth over the next three years to improve compared with 73 percent of their NI counterparts. This is up markedly in ROI from 60 percent of respondents last year but effectively static in NI (72 percent in 2023).

Meanwhile worldwide optimism in the global economy is also up from 60 percent confidence in 2023 to 72 percent this year.

Faith in the three-year prospects for the ROI economy was marginally more optimistic this year, up to 90 percent from 87 percent in 2023. North of the border the shift was somewhat more positive, with 93 percent of business leaders in NI stating confidence in the local economy compared with 67 percent last year.

Attracting companies and employees to Ireland

According to Tom Woods, Head of Tax with KPMG in Ireland, such continued relative optimism in the Republic has in part been driven by continued robust demand in many sectors and the trend of very strong exchequer receipts taking pressure off government finances.

However, Woods cautions against any complacency and highlights the enduring issues of cost and complexity being faced by many businesses.

“From a public policy perspective, we have been clear on the need to promote high value employment as the bedrock of economic resilience and tax plays an important role in this strategy. Moreover, employment taxes are a huge contributor to the exchequer. We believe tax policies shouldn’t make it unattractive to hire additional employees or to take up a job in Ireland when compared with other markets.”

Woods says that our success at attracting business “will be closely tied with how successful we are in attracting individuals to relocate and work here.”

Tom Woods also stresses the importance of promoting domestic entrepreneurship and he believes that “Individuals should be encouraged to put some of their savings to productive use, helping SMEs to finance growth, innovation and the creation of new employment opportunities.”

Tax policies shouldn’t make it unattractive to hire additional employees or to take up a job in Ireland when compared with other markets

Tom Woods

Partner

KPMG in Ireland

Untapped potential in Northern Ireland

We can and should be attracting more inward investment and home-grown businesses have further potential to scale and grow.

Johnny Hanna

Partner-in-charge

KPMG in Northern Ireland

In Belfast, KPMG’s Johnny Hanna is cautiously optimistic about the local economy. As Partner in Charge of KPMG in Northern Ireland, he says that business leaders have always had an additional level of resilience “to deal with some of the previously unique challenges of doing business in the region.”

In a post Brexit environment, Hanna says that there’s “A measured sense of optimism in the business community.” He cites the foundations of a functioning Executive and high levels of employment. Hanna says, “Such relative stability underpins confidence in both the wider economy and in businesses themselves.”

However, he believes there’s also a sense of unrealised opportunity . “We can and should be attracting more inward investment and home-grown businesses have further potential to scale and grow.”

Hanna also cautions that tough measures flagged by the new Labour government in London “Have the potential to hamper progress in funding for much needed infrastructural development including the widely heralded City Region and Growth Deals which are of significant importance and need certainty to deliver the expected benefits.”

Growth and the eternal optimist

Annually our research highlights the tendency of CEOs to be more optimistic about growth in their own business than they are about the wider economy and this trend continues.

A hugely positive 93 percent of CEOs in ROI (up from 73 percent last year) and 87 percent of their cross-border peers in NI (also 73 percent last year) are optimistic about the future prospects of the companies they run in terms of predicted growth over the next three years.

However, it isn’t all plain sailing and worldwide our respondents identify labour shortages, cost pressures and geopolitical insecurity as three major risks facing their organisation’s growth over the next 3 years.

Business leaders also express concerns about the potential acceleration of deglobalisation as a result of leadership changes in many countries and the risk of growing protectionist attitudes in some markets.

Earnings expectations up and inflation down

The vast majority (97 percent) of business leaders in ROI anticipate earnings growth over2.5 percent over the next three years whilst the expectations of their NI counterparts are somewhat more measured at 70 percent. Meanwhile CEOs worldwide share a similar outlook with just over half (54 percent) expecting earnings growth of 2.5 percent or more.

This year our respondents are hardly concerned about interest rates - showing just how quickly the economic cycle can move. In contrast, in 2023 just under two thirds (63 percent) of ROI business leaders were worried about interest rates hikes, rising to 70 percent in NI and 77percent worldwide.

This year interest rates don’t feature in ROI as we enter a likely downward trend in the interest rate cycle and only 7 percent in NI continue to express concerns.

However, some central bankers have signalled caution on the pace of rate cuts in the context of continued strong wage growth and some possible upside risks to recurring inflation.

Delivering on ambition

Our experience with clients in every sector shows that technology is front and centre in their business transformation and future growth plans.

Barrie O'Connell

Partner

KPMG in Ireland

So how are CEOs planning on translating their growth optimism into real numbers? Firstly, the vast majority will continue to hire new people.

Worldwide 92 percent of CEOs say they will add to their teams. In Ireland the picture is similar. In ROI a massive 97 percent of CEOs expect to recruit more people over the next three years. In NI it’s a similar picture with 90 percent expecting to add to their headcount.

Business leaders in many markets also expect it to be challenging to hire the right people. Out of a range of top-of-mind issues faced by CEOs, competition for talent was cited by those in ROI as the second biggest issue ranked by business leaders, exceeded only by the race to embrace and embed generative AI.

For Barrie O’Connell, Head of Clients & Markets at KPMG in Ireland, this data highlights the enduring role of talented, skilled people at every level in successful organisations.

“Our experience with clients in every sector shows that technology is front and centre in their business transformation and future growth plans. Almost every CEO has this fear of getting left behind on tech. Yet when we asked our survey respondents about what would help mitigate against tech changes and future proof their business, more often than not it’s about having the right people on the team.”

Worldwide, the future of job growth is uncertain, with some markets more bullish over the next three years while others are pulling back in favour of prioritising investment in technology.

In the context of growth and transformation objectives, our research asked CEOs where their priorities lay. In ROI, CEOs told us that they were slightly more likely to place capital investment in new technology (57 percent) as opposed to placing more investment in developing workforce capabilities (43 percent) – quite similar to the global average of 59 percent placing an emphasis on capital and 41 percent of their workforce. In NI, local CEOs are equally balanced with 50 percent of them prioritising capital and the same (50 percent) focusing on people.

The outlook for M&A

We anticipate technology, healthcare & pharmaceuticals, and energy & infrastructure...to be the most active sectors.

Mark Collins

Partner, Head of Deal Advisory

KPMG in Ireland

Exploring attitudes to M&A, our CEO research found that just over a quarter (27 percent) of ROI CEOs see M&A as the most important strategy for achieving their organisation's growth objectives over the next 3 years, marginally ahead of the figure for their global peers at 26 percent.

Meanwhile, for CEOs in NI the appetite for prioritising M&A rises to 37 percent. Of those surveyed, 40 percent in ROI are planning acquisitions compared with 53 percent in NI – somewhat lower than the 95 percent worldwide looking at the same approach.

According to Mark Collins, Head of Deal Advisory with KPMG in Ireland, “A sense that the major economies have passed the top of the interest rate cycle coupled with valuation rebasing in some sectors can provide opportunities to unlock attractive deals. Looking ahead, we anticipate technology, healthcare & pharmaceuticals, and energy & infrastructure are expected to be the most active sectors.”

As a caution, Collins suggests that attention should continue to be paid to the reasons for deal failure, noting that “while macro considerations can and will continue to be a driver of deals not getting over the line, valuation gaps continue to be cited by many participants as the primary reason for deal failure in the Irish market.”

Looking at the funding environment for deals in Ireland, Collins says Irish business benefits from a wide range of financing options. “Irish banks are typically the first port of call for most companies and we continue to close attractive loan deals. The lending environment is somewhat cautious, however, good companies that can express their business plan along with mitigants for business risks such as inflation, availability of employees and market turbulence are getting access to the funding they require.”

Questions to consider

Have you considered the impact of a positive change in the interest rate cycle noting the caution flagged by some central bankers?

Are your funding strategies developed to meet your objectives, rather than solely attracting whatever funding is available?

What is your deal appetite given that there may be more opportunity to unlock attractive deals?

Have you reevaluated your strategy in core export markets given varying growth predictions for some countries?

Actions to consider

As economic growth in many major countries remains anaemic, scenario plan for varying economic performance in your main markets as conditions can and do differ from Ireland.

Meanwhile assess your M&A appetite in the context of a changing interest rate environment and consider that valuation rebasing may reveal opportunities to unlock attractive deals.