Business confidence among small and medium businesses is strengthening, a new survey said, with levels at their best in five years.

According to ISME, the Irish Small & Medium Enterprises Association, there is still much uncertainty over the domestic economy, with retailers particularly feeling the pain from the downturn.

Some of the main concerns remaining include economic uncertainty, access to finance, cost competitiveness.

But exporters are becoming increasingly upbeat about the future of the economy, driven partly by improved data from the US.

Confidence is still in negative territory, but has recovered significantly the survey said, while the index measuring business expectations has moved into positive territory.

Investment, although expected to remain subdued, has show gradual improvement.

The number of companies cutting staff has also slowed, with 11 per cent reducing staff numbers.

“The clear priorities for 2012 are the revitalisation of the domestic economy allowing it to return to normal profitable levels of trading and the sorting out of the banking issue which is hindering this,” said Isme chief executive Mark Fielding.

“The creation of jobs will be part of the answer to the consumer demand problems and this can only be achieved when business costs, many of which are driven by Government, can be curtailed.”