Linked Finance has found that business optimism amongst Irish small- and medium-sized enterprises (SMEs) has hit its lowest level since the end of 2020.
Research by the Dublin-based peer-to-peer lender showed that business confidence fell in the first quarter of the year as war in the Ukraine and surging inflation left companies more wary about current conditions and their future prospects.
The platform’s latest quarterly SME Confidence Index came in at 61.1 in the first quarter of 2022, down from 67.9 in the prior quarter and 65.1 a year ago.
It is the lowest index level since the fourth quarter of 2020, in the middle of the Covid-19 pandemic.
The platform warned that the positive impact of the government’s ending of pandemic restrictions appears to have been outweighed by the feared slowdown in the economy caused by the war in Ukraine and the impact of the cost of living crisis.
Only 35 per cent of respondents said business activity in the first quarter was better than the previous quarter and future optimism also fell, with 38 per cent of companies saying they expect future activity to improve, down from 48 per cent in the fourth quarter of 2021.
With inflation hitting 7.4 per cent in the country, SMEs in Ireland are looking to recover their higher costs by increasing prices.
The index found that 39 per cent of respondents said they increased prices in the quarter, up from 31 per cent in the previous report, which was already at the highest level in ten years.
Just 33 percent of micro-SMEs, those with one to three employees, are more optimistic about their future prospects compared with 68 per cent of mid to large SMEs with 10 or more employees.
This trend is also reflected in employment, with only four per cent of micro-SMEs increasing headcount in the quarter compared with 34 per cent of mid to large SMEs.
Overall sentiment on hiring has fallen slightly this quarter with 10 per cent of companies increasing headcount, compared with 15 per cent at the end of 2021.
“Hopefully this is a short-term stalling of the recovery trends we have been seeing recently from the Index, but clearly a lot has changed in recent months that makes the business environment more challenging,” Niall O’Grady (pictured), chief executive of Linked Finance, said.
“The war in Ukraine is first and foremost a humanitarian tragedy, but it is also having a broader impact on the global economy particularly through the inflationary pressures of higher energy and input costs.
“Irish SMEs have been looking to recover pricing power and improve profitability but with their own input costs also rising, margins are still being squeezed even where customers are facing higher prices.
“We should not be overly gloomy though, as the Index is still much higher than the levels it fell to during the pandemic and whilst we’ve seen a pull back this quarter on most metrics it may only be temporary.”