Businessesbecome more cautious and cut back on their financial projections - Linked Finance
Irish Small and Medium-sized Enterprises (SMEs) have experienced a dip in business activity in the second quarter of 2025, with the sector's performance being negatively affected by a complex global trade environment, geopolitical tensions, and decreased exporter optimism following tariff threats.
Despite these challenges, the sector shows resilience, with some areas like retail and wholesale seeing increased optimism and some SMEs maintaining stable activity levels.
External Challenges Affecting SME Performance
The uncertain global trade environment and geopolitical uncertainties are primary external challenges reducing business confidence and forecasts. Reduced exporter optimism, due to tariff threats, particularly from the US, and a 10% increase in exporters experiencing a drop in trade from Q1 to Q2 2025, have also contributed to the decline in business activity.
Sector-specific Impacts
Medium-sized SMEs (4–9 employees) have been most affected, with nearly 25% reporting decreased activity. Larger businesses have generally held up better.
SME Response to Global Trade Concerns
Some SMEs have increased prices, though this is a decrease by 10% compared to two years earlier, indicating cautious price adjustments in response to cost pressures and market uncertainty. Exporters rushed to boost orders in Q1 ahead of tariffs but optimism faded in Q2 as tariff impacts materialized, reflecting an adaptive but reactive stance to global trade developments.
SMEs are maintaining stable activity where possible, showing resilience amid uncertainty, though some are reducing forecasts and business optimism has dropped from 67% to 61% in six months. Investment growth among SMEs is modest, with a net 6% expecting to increase investment in Q3 2025, indicating cautious forward planning despite current challenges.
Domestic Demand Offsets Some Export Challenges
Domestic demand remains relatively solid, supported by factors such as strong employment and population growth, partially offsetting export challenges.
Outlook for Q3 2025
The third quarter of 2025 has a slightly negative business sentiment (-3% gap on positive over negative). Business optimism amongst all Irish-based SMEs surveyed has dropped from 67% six months ago to 61%.
The retail and wholesale trade is the one area within the broader SME sector that saw increased optimism levels in the second quarter of the year, with positive sentiment up 5% year-on-year. Activity levels at indigenous businesses are almost flat year-on-year.
Conclusion
Irish SMEs in Q2 2025 are facing dampened performance and cautious outlooks due to complex global trade uncertainties and tariff risks. They respond by adjusting prices, moderating forecasts, and trying to sustain operations amid a mixed domestic and export environment. Despite the challenges, the sector shows resilience, particularly in sectors like retail and wholesale.
In the current global trade environment, the declining business confidence and forecasts among Irish Small and Medium-sized Enterprises (SMEs) can be attributed to the complex trade environment, geopolitical tensions, and tariff threats that have led to reduced exporter optimism and a drop in trade. Furthermore, in the finance aspect, SMEs are cautiously planning their investments, with only a net 6% expecting to increase investment in Q3 2025.
