The majority of Irish SME businesses are heading into the second half of 2024 with optimism, despite unstable geo-political headwinds and instability in global stock markets. This positive sentiment is reflected in the latest Linked Finance SME Confidence Index, based on research conducted by IPSOS B&A.
However, micro-businesses (1-3 employees) remain under severe pressure, particularly when it comes to profitability, with no positive metrics on this front since 2018. Three in 10 are not optimistic about trade in Q3 2024, according to the results. Indigenous businesses focused on the Irish market are also feeling the pinch somewhat. Minimum wage legislation, inflation and Covid-linked debt warehousing have impacted these two cohorts more.
However, the large category of SME businesses (10+) is performing particularly well, with 69% reporting better results in the last 12 months. Exporters are also doing much better in trade and confidence terms year-on-year, with an increase of 11 percentage points on the sentiment index during the same period.
Widening divergence between some businesses
Overall optimism among businesses in Ireland’s SME sector has seen positive growth year-over-year, with the Linked Finance SME Confidence Index standing at 62.51 (scored out of 100) in Q2 2024, compared to 61.9 in Q2 2023. The Index remained stable from Q1 2024, and it also showed steady performance quarter-over-quarter, which should continue into Q3 this year.
However, the Index does reveal a widening gap between larger and smaller businesses in Ireland's SME sector, as challenging economic conditions continue to divide the market with micro-enterprises and those in the Retail & Wholesale sector facing growing pressures on multiple fronts, with both sectors showing the lowest optimism levels going into H2 2024.
Pricing and profitability
In an encouraging sign for economic stability and recent reductions in the inflation rate, the trend towards higher prices evident since the end of the Covid pandemic has now levelled off. According to the index, businesses appear more likely to maintain rather than increase prices - despite ongoing pressures on profitability. This applies mainly to mid-sized SMEs, as opposed to micro-businesses, who have had to keep increasing their prices to cover higher costs.
Niall O’Grady, CEO of Linked Finance commented: “The steady confidence levels seen over the past 12 months among Irish SMEs reflect a sector that is becoming increasingly adept at navigating economic uncertainties. However, smaller, domestic-focused SMEs are more vulnerable to inflationary pressures and are still having to pass on pricing increases as a means of protecting their profitability.”
Sustaining Ireland’s workforce
Medium and large SMEs are particularly positive about the second half of the year, driving overall confidence levels. These companies are leading the way in job creation, with the overall employment metric remaining in positive territory.
The research also highlights the success of Irish exporters, who are outperforming their domestic-focused counterparts. This demonstrates the competitiveness of Irish businesses in a dynamic global environment and the importance of international trade to the economy.
Retail and Wholesale sector suffering
The Retail & Wholesale industry has seen a stark turnaround in sentiment compared to this time last year. While 40% of those surveyed in the sector had a positive outlook then, this has now halved to just 20%. Inversely, the percentage of those with low expectations in terms of positive has jumped from 12% to 28% year-on-year. Job losses stem from this sector, and companies in this SME division are also under serious strain when it comes to profitability.
Political support
The Confidence Index has also revealed that Irish SMEs are politically engaged, with a clear view of which parties they believe will best serve their interests in the next government. Overall, Fine Gael was deemed the party that would best serve the current issues of Irish SMEs in the next government, followed by Fianna Fáil and then Sinn Féin. Interestingly Fianna Fáil are more popular amongst larger SME businesses, than Fine Gael.
The survey results indicate that together, Fianna Fáil and Fine Gael are favoured by more than 50% of the business surveys. However, almost one in four registered their support for ‘other’ – indicating a preference outside the six main political parties – suggesting a significant leaning towards Independents.
"The results from our survey highlight that SMEs are closely monitoring government actions, especially with a general election on the horizon. While the overall sentiment remains positive, it is crucial for government policies to continue supporting these enterprises,” said O’Grady.
In 2024, for the second consecutive year, Linked Finance was named as one of the world's top fintech companies as part of CNBC's prestigious "World's Top 250 Fintech Companies 2024 ”. The lender has provided over €320 million in capital loans to SMEs to date. Notable companies that have raised funding with Linked Finance in the past include the Rolling Donut, Kokoro Sushi Bento, Murphy’s Ice Cream, and the Irish Fairy Door Company.
Methodology
This information and historical data was obtained by Ipsos B&A and conducted between 14th July - 3rd August 2024 via telephone and online amongst a sample of 351 Business owners/Managers countrywide. SMEs were classified as micro-businesses (1-3 employees); medium (4-9 employees); and large (10-250 employees)
