A recent survey conducted by non-bank lender Linked Finance has revealed that Irish SME businesses have displayed remarkable resilience despite inflation, rising interest rates, and geopolitical events. The SME Confidence Index, based on research conducted by IPSOS B&A, indicates that optimism levels among Irish SMEs have remained steady in the first quarter of this year, scoring 62.95 out of 100, compared to 62.43 in the final quarter of 2023. Although there have been fluctuations, with optimism levels peaking at 64.13 in the third quarter of 2023, the overall trend has been positive.
The survey also highlighted improved projections for profitability and job creation, with 73% of respondents reporting profits either the same or better than the previous quarter, a significant increase from the previous survey. Moreover, 76% of companies anticipate trading activity in the next quarter to either remain the same or improve. However, there is still a gap to be bridged to return to pre-Covid levels.
It is also worth noting that employment growth has seen a positive shift, with fewer companies expecting to cut jobs and more planning to increase headcount compared to last year. Despite these positive indicators, current business activity has dipped into negative territory for the first time since the onset of Covid-19. Only 33% of businesses expect higher activity in the second quarter of this year, down from 35% in 2023 and 38% in 2022.
The survey also brought to light that micro-enterprises, which typically have one to three employees, have experienced weaker trading performance. Only 28% of respondents from micro-enterprises expect business activity to increase in the coming quarter, compared to 51% of larger businesses. This trend is also reflected in profitability, with only 26% of micro-SMEs experiencing higher operational profit in 2023, compared to 40% of larger SMEs.
Linked Finance, which has recently reached the milestone of lending over €300m since its launch, highlighted the commendable resilience of Irish SMEs during the recent economic challenges. Niall O’Grady, the CEO of Linked Finance, emphasized the need for continued support and adaptive strategies in the face of the dip in current business activity. He also noted that micro-businesses, which are often family-run enterprises with 1-3 staff, will require support as they navigate through additional costs and challenges brought about by the economic turbulence over the past three years.
As the Irish SME sector continues to display resilience and optimism, it is clear that businesses are facing challenges that necessitate support and adaptive strategies to navigate through the current economic landscape. With the majority of Irish SMEs holding steady, it is crucial to provide targeted support to sectors that are struggling to recover quickly from the challenges posed by the Covid-19 pandemic, inflation, and interest rate pressures. Linked Finance’s survey sheds light on the need for continued support to ensure the growth and sustainability of Irish SMEs in the face of economic challenges.