Ireland’s small and medium-sized enterprises are looking to the New Year with renewed optimism despite ongoing challenges, writes Niall O’Grady
Optimism among Ireland’s small and medium-sized enterprises (SMEs) is at its highest level in over a year, as the sector continues to adapt to ever-changing economic and political environments.
Linked Finance’s newly published SME Confidence Index reveals that large SMEs employing between 10 and 250 people are the most upbeat, reporting a positivity rating of more than 72 percent on their current outlook.
The service sector shows the strongest positivity at close to 66 percent, while there is a marginally better outlook among SMEs in Dublin (65%) compared to those located outside the capital (62%).
Despite this, our index also shows a three percent overall year-on-year decline in trading activity in the last quarter of 2024, and a notable divide between the improved trading performance of large and mid-sized SMEs and smaller businesses that are still struggling.
Close to half of all large SMEs surveyed (48%) have seen business activity rise in the last 12 months, with just 15 percent reporting reduced activity. Forty-two percent of mid-sized SMEs (4–9 employees) have also seen trading levels improve over the same period.
By contrast, 40 percent of micro-businesses (1–3 employees) have seen a drop in business activity compared to the same period last year.
While there may be a dichotomy between the drop in SME trading activity and the concurrent rise in optimism, it is worth noting several factors contributing to a more positive outlook for the year ahead.
These include the near flatlining of inflation, the so-called “Budget bounce” and a stable domestic political environment. Increased business costs – particularly energy – have ultimately been passed on to consumers, with this in turn impacting spend and trading activity.
Job creation levels across the SME sector remain neutral, with the number of new jobs created overall equalling the number of jobs lost – no change on last year’s findings.
Mid-sized SMEs are driving most of the job creation, while micro businesses are employing considerably fewer people – the lowest level since the height of Covid.
The majority of jobs are being created by SMEs outside Dublin. Stronger job creation outside the capital has been an ongoing feature of the SME sector post-COVID, with the rise in employers offering hybrid working a likely contributor.
Three quarters of SMEs in and outside Dublin expect employment levels to remain level with those recorded in the same quarter last year. Fifteen percent of those situated outside the capital expect to employ more people over the period, compared to just six percent in Dublin.
The majority of job losses in SMEs are occurring in retail and wholesale, with one-in-six SMEs surveyed in this sector anticipating lower employment levels this quarter.
SMEs in the services sector reported a much more positive outlook, with 21 percent likely to have more people employed by the end of this year compared to 2023.
Following the General Election, Fine Gael is the preferred party amongst the SMEs we surveyed, particularly in Dublin, at 37 percent.
Twenty percent of our respondents selected Fianna Fáil as their preferred party, while Sinn Féin was ranked best for business by 11 percent. Twenty-one percent opted for “others” outside the six main political parties.
With exploratory government formation talks likely to kick off soon, SME business owners will be looking to the country’s leaders to ensure they are well supported, given the potential headwinds from across the Atlantic with the election of Donald Trump and the possible impact of new US tariffs on international trade and the Irish economy.
Overall, it is encouraging to see the uplift in optimism in this year’s SME Confidence Index, particularly given the ongoing instability in the geopolitical environment, and the high costs SMEs continue to face. Next year is likely to bring its own challenges – but also opportunities.
Niall O’Grady is Chief Executive of Linked Finance
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