More than half of Irish businesses expect the current downturn to last more than two years as uncertainty, risk aversion, government cutbacks and a tight supply of credit prevent a "straight line" recovery, according to a new survey.

Uncertainty about the business outlook over the next two years has increased significantly in the latest KBC Bank Ireland/Chartered Accountants Ireland quarterly report as persistently weak domestic demand makes firms feel as if they are stuck in limbo.

In the previous survey in April, only 21 per cent of those questioned felt the downturn would last more than two years.

"The general sense is of an Irish economy that is seeing no clear change in business conditions," the survey said.

"While the worst may be over in terms of the downturn, there is a distinct absence of the sort of progressive improvement in business conditions that might be expected in a normal recovery."

On a Gross National Product (GNP) basis, the Irish economy shrank by 4.3 per cent in the first quarter on a seasonally adjusted basis, the fastest drop since current records began in 1997.

Respondents in the survey expect to see an improvement in activity in the third quarter but that is principally due to fewer companies expecting a drop in business in the past two quarters rather than any pronounced increase in the number of firms envisaging a pick-up in activity.

"In terms of sentiment, this suggests that a gradual diminution of the 'feel bad' factor rather than the emergence of a pronounced 'feel good' factor may be the most notable feature of a gradual turn in economic conditions for most Irish businesses."

The survey was conducted between June 27th and July 12th and questioned 321 chartered accountants working in senior positions such as chief executives, managing directors and financial directors in leading companies.

Reuters