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Confidence among small and medium sized Irish companies is at a 20 year low, according to a survey by the Irish Small and Medium-Sized Enterprises Association (Isme).

The deterioration of business confidence can be seen by the drop of 65 per cent in the number of companies optimistic about the future at the end of June, compared with the same period in 2007.

According to Isme the survey of 700 companies reveal a “major downturn” in recent months with firms reporting falls in sales, orders investment and employment.

While pessimism is most pronounced in the construction sector, where 85 per cent of firms are less confident than a year ago, a major concern is that the most buoyant of all sectors – services – has recorded a 44 per cent pessimism reading.

Mark Fielding, Isme chief executive said the negative trend has accelerated in recent months and had spread to the services sector.

He said cost cutting was the only option for many firms “factory gate prices, exports and retail sales” decline and “Irish inflation at 5 per cent is almost embedded in the economy.”

He said the impact of these and wider global factors such as high oil prices and the strong euro was prompting SMEs to curb investment.

“The overall effect on the sector will be felt for at least two years, depending on the global economic situation as survival becomes the watchword and cost reduction the mantra among SME owner managers,” Mr Fielding said.