Confidence levels among Irish small and medium-sized enterprises (SME) have lessened compared to two years ago, a new survey has revealed. However, companies are optimistic on the outlook for jobs.

The annual O2 Business Survey found that 29 per cent of firms are more confident about the coming year than they were at this time last year, compared to 43 per cent two years ago and 33 per cent last year.

Firms in Dublin and the rest of Leinster are more confident about the future, with 32 per cent of owners and managing directors expressing confidence in the business climate, compared to 24 per cent for Munster and 29 per cent for Connacht/Ulster.

The number of firms which are less confident has risen from 10 per cent two years ago to 17 per cent this year.

The survey of 300 companies across the State, employing between one and 250 people, found that external costs and managing costs are the big challenges facing the SME sector, with almost one in three citing these as major threats.

Increased competition was highlighted by nearly a quarter of companies as a big challenge in the coming year, with 12 per cent of respondents citing cashflow, 7 per cent mentioning wage inflation and 5 per cent worried that staff retention and recruitment would be a challenge next year.

"Overall Irish SMEs remain optimistic, but this year's survey finds cost pressures and competition remain the major threats," said Bill D'Arcy, head of business sales and services at O2 Ireland.

"This year's increase in interest rates, fuel prices and other costs may have dampened expectations compared to two years ago."

However, the jobs outlook remains positive, with 39 per cent of Irish SMEs expecting to increase headcount, up from 31 per cent last year. Only 3 per cent expect to shed staff. A total of 39 per cent of firms said it was more difficult to hire suitable staff, with just 15 per cent indicating this was not a problem.

Despite this year's rise in interest rates and the apparent slowdown in the housing market,property remains the investment of choice among managers /directors.