Market Update: Business confidence in Irish economy sinks to lowest level since pandemic – The Irish Times – Full Analysis

The level of optimism among medium-sized businesses about the outlook for the Irish economy over the next 12 months has fallen to its lowest level since the pandemic, new research shows.

The study from Grant Thornton, which runs quarterly, is based on interviews with senior executives with mid-market organisations across 35 economies from all industry sectors, including more than 100 companies from Ireland.

Confidence dropped to 54 per cent in the final quarter of last year, down from 81 per cent at the start of 2025.

The report said the fall highlights a “significant deterioration” in sentiment over the past year as Irish firms “grapple with increasing global uncertainty and rising cost pressures”.

By contrast, global business optimism currently stands at 74 per cent, representing a 2 per cent year-on-year decline, underscoring the “more pronounced challenges” faced by Irish businesses.

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The decline in economic optimism among Irish firms is mirrored across a range of key business indicators. Confidence in projected revenue growth in the next year among Irish businesses shrank from 79 per cent to 59 per cent over the quarter.

Similarly, expectations for increasing headcount over the next 12 months have also weakened, dropping from 59 per cent to 46 per cent over the same period.

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“The research highlights a clear shift in the challenges facing Irish firms, with global economic volatility increasingly shaping business sentiment,” the report said.

Almost three in 10 Irish firms now see geopolitical disruption as a key constraint on growth – that figure having almost doubled from 16 per cent at the start of 2025.

While global concern about geopolitical disruption “remains significant”, with 46 per cent worldwide citing it as a constraint, the Irish figure of 29 per cent indicates Irish businesses are “comparatively less affected by geopolitical disruption”.

The number of firms citing labour costs as a key constraint on their business jumped from 27 per cent in the first quarter of last year to 40 per cent in the last.

“Unsurprisingly, this has had a knock-on impact, with the amount of companies expecting to increase salaries over the next 12 months falling from 77 per cent to 54 per cent,” the report said.

More than half of Irish businesses identified skills shortages as a barrier to growth. Concerns over energy costs have also risen, with 37 per cent of Irish firms now citing energy as a key constraint – up from 27 per cent at the end of 2024.

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More than a third of Irish firms view regulation and red tape as a significant barrier, in contrast to 49 per cent of businesses globally and across the EU.

“This comparatively lower figure for Ireland suggests that Irish businesses are less burdened by regulatory challenges than their international peers, potentially offering them an advantage when it comes to navigating compliance issues,” according to the report.

“Unsurprisingly, firms are taking a scalpel to certain types of spending, with marketing budgets being impacted, as only four in 10 businesses plan to increase brand investment, down from 65 per cent at the start of 2025.”

Similarly, only 38 per cent expect to increase their investment in sustainable initiatives over the next 12 months, down sharply from 56 per cent three months earlier.

“Despite this, the research also revealed that Irish business leaders are balancing short-term pain against long-term competitiveness, the report added.

“While plans to invest in certain areas may be impacted, just over half of the study’s Irish participants expect to increase IT spending over the next year.”