Irish SMEs perform well despite inflation concerns

82% of Irish SMEs reported a performance better or in line with expectations in the first six months of the year

Linked Finance's SME confidence index showed two-thirds of businesses were experiencing higher or the same level of profitability compared to last year.

More than four in five Irish SMEs reported a performance better or in line with expectations in the first half of the year, despite a challenging macroeconomic environment and supply chain disruption.

Linked Finance's SME confidence index showed two-thirds of businesses  were experiencing higher or the same level of profitability compared to last year. This comes amid a period of soaring prices, with Ireland's inflation rate reaching 8.9% in August.

In a statement, Linked Finance said the "price pressures do pose a challenge" for businesses, with 42% of firms increasing their prices during the second quarter of the year to offset pressures caused by soaring inflation.

The positive performance of many SMEs "suggests an ability to maintain margins and pass on input cost increases to customers".

While many are concerned about the cost-of-living crisis and rising energy bills, the majority of SMEs are retaining a positive outlook for the second half of the year, with 62% expecting their business performance to be better than the first six months of the year.

Recovery

Findings from the Linked Finance survey showed micro-SMEs (firms with one to three employees) were experiencing slower recovery, driven by low levels of increases in operational profits compared to other companies.

There were also significantly lower levels of future optimism reported among micro-firms, as only 38% anticipated higher performance in the third quarter as opposed to 47% for large SMEs.

Only 31% of retail and wholesale businesses reported a stronger performance in the second quarter, making it the slowest recovering sector. This is in spite of attempts by retailers to recover higher input costs, with 64% of retail and wholesale SMEs increasing prices in the quarter compared to 42% for all businesses.

Niall O’Grady, chief executive of Linked Finance, said: "The major challenge for businesses, in particular the micro-SMEs and those operating in the retail sector, is to find ways to manage the bite of surging input costs, a problem that is likely to get harder during the winter period when use of expensive energy will rise."

Mr O'Grady also said SMEs focused on selling within Ireland were facing a different experience compared to businesses focused on selling their goods and services abroad. 

He added exporters were: "less optimistic about the outlook and starting to find the pressures of Brexit and rocketing shipping costs potentially outweighing buoyant demand”.