AN inexplicable blanket of pessimism has descended over the Republic's small and medium sized companies, despite bulging order books and soaring employment, the sector's lobby group, ISME, said yesterday.

The body's fourth quarter business survey also reveals that competition is squeezing profits, and complains of persistent late payment from State agencies.

Business optimism, which usually climbs with other indicators such as volume growth and employment, had fallen sharply by 14 per cent, ISME said in a statement. Just 39 per cent were confident, compared to 54 per cent this time last year.

"This paradox is only explicable by reference to the fact that in a boom period competitive firms are under pressure to maintain and increase their market share. Growth causes its own problems," ISME said.

Other reasons put forward by the body included "the perception that in spite of rapid economic growth, the benefits have accrued".