Both consumer and business confidence fell in January after a return to Level 5 Covid-19 restrictions with schools and non-essential construction closed again.
Bank of Ireland's latest Economic Pulse fell to 61.6 in January, down 8.6 on the December reading and 24.5 lower than the same time a year ago.
Bank of Ireland said that 35% of firms said they expect business activity to decline in the next three months and 52% of households said they are holding out on spending because they are not certain which way economic policy is going to go.
This compares with 59% and 61% in April 2020 respectively.
At 60.3 in January, the Consumer Pulse was down 5.9 on last month's reading and 22.3 lower than a year ago.
Bank of Ireland said the recent surge in the virus has set households on edge, and with further restrictions being put in place, they were gloomier about the economy and their own finances this month.
Meanwhile, the Business Pulse came in at 61.9 in January 2021, down 9.3 on last month and 25.1 lower than the same time last year.
The bank said that while firms were downbeat about business prospects for the coming three months in January, the survey results show that growth ambitions further out were back at their pre-pandemic level.
Three in five firms said that they are planning on expanding in the next one to three years, with the Covid-19 vaccine and clarity on the nature of the post-Brexit trading relationship tailwinds in this respect.
But the Housing Pulse rose for a ninth consecutive month in January 2021 to 86.5 - an increase of 4.5 on last month and 8.1 higher than a year ago.
Bank of Ireland said the shutting of building sites as part of the latest round of Covid-19 containment measures is a headwind for supply.
As this is already lagging demand, it noted that households lifted their expectations for future house price increases again this month.
It also said the January survey found that 32% of consumers plan to undertake home improvements over the coming year. It said this was a bit above normal, likely reflecting higher savings and ongoing remote working.
Dr Loretta O'Sullivan, Group Chief Economist for Bank of Ireland, said the scale of the drop in sentiment this month was similar to last October but much less than last spring.
"The latest containment measures are not quite as stringent as those of the initial lockdown and there has been some adaptation and innovation by households and firms since then," Dr O'Sullivan said.
"They still make for a challenging start to 2021 though, as do the difficulties currently being experienced in implementing the new trading arrangements with the UK," she said.
"The worst case Brexit outcome has been avoided however, and as the year progresses, the successful widespread deployment of the Covid vaccine will be key to shoring up consumer and business confidence and the economic recovery," the economist added.