• Business Confidence in the SME Sector continues to rapidly deteriorate

• Nearly half of companies (47%) less confident about business prospects

• Employment prospects in ‘reverse gear’ and at best will be static over the next 12 months.

• Level of sales in ‘freefall’.

• Worrying reduction in sales and orders paints a bleak picture of the economic landscape for the next number of months.

• Economic Uncertainty continues to dominate.

• Strong Government Leadership required to steer economy through troubled waters.

• Tackling inflation, ensuring wage moderation in both the private and public sectors, and addressing the erosion of competitiveness need to be put to the top of the Government’s agenda

The results of today’s survey by ISME, the small firms' lobby group, confirm that the first 3 months of 2008 have proven to be particularly difficult for the small business sector. This is reflected in SME business confidence, which continues to plummet, with almost half (47%) of respondents less optimistic about future prospects than they were 12 months ago. This compares with 38% less confident in the previous quarter and 26% less confident this time last year. Only 16% are more optimistic. The figures are among the most negative seen in the sector in the last 5 years and can be directly related to a significant reduction in orders in the last quarter.

The survey, which attracted a response from over 500 companies, confirmed that there has been a major readjustment by smaller companies over the last number of months, with many companies reporting serious reductions in sales, orders, investment and employment.

ISME says that the manufacturing sector, in particular has shown a dramatic reduction in business confidence in the last three months with over half, a net 53%, less optimistic about their business prospects than they were in the previous 12 months. This compares to a net 32% in the previous quarter, a substantial 21 percentage point difference. The next most negative sector was Distribution (46%) followed by retail (41%), construction (32%) and services (11%).

There has been no net increase in employment in the SME sector over the last `12 months with 24% of companies reporting that they are employing more than they did 12 months ago with a corresponding figure of 24% outlining that they employ less. To put the reduction in perspective it should be noted that a net 15% of companies reported job increases in the corresponding survey last year, spring ’07.

Not surprisingly the Construction sector recorded the largest increase in job losses with a net 23% of businesses employing less than this time last year. The services sector (net 12%) was the only sector that recorded an increase in employment numbers in the last 12 months.

The low level of business confidence also affects Employment prospects, which are expected to remain static over the next 12 months with only a small net increase (1%) in employment creation. This compares with a net 10% of companies who outlined that they had planned to increase employment in the previous quarter. The sharp decline in projected employment can be gauged by the sectoral figures with all sectors, except Services, recording that they will have a reduction in employment over the next 12 months, with not surprisingly the highest anticipated job losses occurring in Construction, with a net 11% of companies projecting employment losses. Even in services, the only sector which envisages net job creation, the number of companies (13%) who are expected to increase net employment is way down on the 28% who responded positively in the previous survey.

While a net 35% confirmed that they increased investment in their company in the last 12 months, a net 22% plan to increase investment in the next 12 months, down 13 percentage points on the previous quarter.

What is of huge concern, according to ISME, is that only a net 2% of companies reported that sales were now greater than the same period last year, a massive drop from the net 33% of companies who reported that their sales were greater in the previous quarter.

46% anticipate an increase in sales in the next 12 months with 39% anticipating a reduction.

25% of companies have orders, production capacity and markets unserviced for want of working capital with almost one in ten companies (9%) reporting that stocks were below normal for the time of year.

Over a quarter of firms (26%) have encountered cancellation of orders in the last quarter.  Cancellations were from,

Locally Based Multinationals - -13%.

Export Destinations - -11%

Local Indigenous Firms - - 76%

Compared to 12 months ago, 36% of respondents confirmed that the credit period being taken is longer with only 4% stating that they get paid faster. The fact that almost one-third of companies are waiting longer to be paid is indicative of a tightening in the economy and remains a significant worry to small business, with a lack of cash flow identified as a major impediment to company growth and a significant factor in company closure.

The value of exports has quite significantly reduced in the last quarter with 36% of companies reporting a reduction in comparison to 14% in the previous quarter. 32% reported an increase in export values in comparison to 23% in the previous quarter. With the Euro trading at record levels against the US Dollar and Sterling it is not surprising that export values continue to decline. The survey results confirmed, for instance, that 54% of exported goods to the UK were paid for in Sterling.

ISME says that if the Euro continues to increase in value against either or both currencies, then Ireland will be further exposed as the high cost, uncompetitive economy we have become.

Firms continue to experience inflationary pressures, with increases of 5% plus being reported for wages, energy, raw materials and transport.

According to ISME Head of Research, Jim Curran, “While quite clearly the currency exchange rate and oil prices are outside our control the Government needs to address the internal ‘out of control’ cost environment, including the cost of running the public sector, which threatens to eradicate the impressive levels of growth achieved over the last number of years. In particular the current level of inflation cannot be allowed influence further increases in wage levels, which would be disastrous for the labour intensive SME sector.”

“It is absolutely essential therefore that businesses are not hampered by unrealistic wage demands and that the talks towards a new national wage agreement recognise that the last thing the Country needs is excessive wage demands that lead to a wage price spiral”, he continued.

“Tackling inflation, ensuring wage moderation in both the private and public sectors, and addressing the erosion of competitiveness need to be put to the top of the Government’s agenda in order to instill a level of confidence in the economy, which has been quite obviously lacking over the last number of months. Based on today’s findings, the Government needs to show strong and decisive leadership to help the economy and the small business sector through what will be a difficult number of months ahead” concluded Curran