Business optimism and employment prospects for small and medium sized firms are being dampened by cost increases and the erosion of competitiveness. This is according to the latest quarterly business trends survey from ISME today.
The ISME report says that business confidence in the summer quarter has reduced from the previous quarter with 32% of firms more optimistic about business prospects over the next 12 months, down from 35%.
The report points out that manufacturing is actually the most optimistic sector with a 17% increase in those companies with a favourable outlook compared to a 16% rise for the services sector and a 7% for distributors. The retail sector was the least optimistic and ISME says this could be due to uncertainty over the future of the Groceries Order.
Compared to the same time last year, there has been a considerable increase in the numbers employed, with almost one in four companies increasing their employment levels, compared with 17% who reduced staff levels. The overall net 21% increase is a significant improvement on the same time last year.
However, employment prospects are not as positive as they were previously, with a net 18% of companies anticipating an increase in employment compared to a net 30% in the previous quarter. 45% of companies surveyed plant to increase investment over the next 12 months, down from 53% in the previous quarter.
The survey identified labour costs as the biggest immediate firms to small and medium sized businesses here with 28% saying it was a significant concern. This was followed by erosion of competitiveness (21%) and economic uncertainty (15%).
The retail sector was most concerned about labour costs, with 42% saying it was its biggest concern. 30% of manufacturers and 27% of service companies also identified the same problem.
'While the results of the survey indicate a reduction in business confidence, employment prospects and investment on previous quarters, this, to an extent, is not surprising as the indicators from the previous surveys in the last 12 months were particularly positive and it would have been extremely difficult to sustain those levels of optimism and performance,' the ISME survey said.
ISME said that it is absolutely essential in order to achieve further growth in the SME sector, that wage rates are not allowed to get out of control.
'It is imperative that at the very least, labour cost increases are brought into line with the EU average to ensure that our competitiveness is not completely eroded,' the report said.
