Small firms are more optimistic about the future, even though the economic environment is still tough.

A new survey from the Small Firms' Association shows that 40% of the companies it spoke to said their businesses will see either a 'good' or 'very good' performance in the coming three months.

The SFA said though that domestic sales remain slow, there are growing signs of a stabilisation in business activity - and even increases in coming months.

But 30% of businesses still rate the current overall business environment as 'poor' or 'very poor'. That compares to over 37% a year ago.

The SFA said that the improvement in small business sentiment and business activity levels indicate that a gradual recovery is taking hold.

It said that the Government now needs to ensure it helps small firms to build on the positive sentiment by creating a business environment conducive to small business survival and growth.

“The biggest challenge for small firms, especially those trading on the domestic market, is confidence among consumer. While there is a gradual improvement it remains fragile, as many positive signs have been knocked by concerns over the euro zone and higher taxes,'' commented SFA Director, Avine McNally.

The SFA urged the Government to increase credit availability to SMEs and financing facilities to support expansion and improve cashflow, while it also recommended no additional costs on employment this year.