Confidence among small and medium enterprises improved in the fourth quarter of the year, but it still remains low and over half of companies consider the business environment as poor.

Exports recorded the highest growth in more than three years, and the rate of job losses slowed.

More than 700 companies took part in the Isme trends survey, which confirmed that there has been an improvement in the main indicators over the past three months.

Although business confidence remains in negative territory, there was some cause for optimism. The survey found a net 13 per cent of companies are less optimistic about business prospects, compared to 23 per cent for the previous quarter.

This varied according to sector. The worst confidence was recorded in the construction sector, where a net 60 per cent of businesses were least optimistic about prospects. That figure was 29 per cent for distributors, 27 per cent for retailers and 14 per cent among manufacturers.

Some 38 per cent of companies predict deteriorating business conditions in the next 12 months. Although only 30 per cent anticipate some improvement, this is a 5 per cent rise on the previous survey.

More than half of respondents said they were concerned that current business conditions threatened their businesses, up from 67 per cent in the previous survey.

Although investment remains stagnant, a rising number of companies have indicated that they plan to increase investment over the next number of months.

However, economic uncertainty, reduced orders and access to credit remain among the biggest concerns for most SMEs.

Smaller companies also recorded higher costs in areas such as transport, energy, waste and insurance.

In the SME sector, a net 21 per cent of companies cut staff numbers, but this was an improvement on the 35 per cent recorded in the previous quarter. Unsurprisingly, the largest number of jobs losses were recorded in the construction sector, with retail following closely.

The survey found the situation is not set to improve and will remain "difficult" with a net 13 per cent of companies predicting a fall in employment in the coming months. This compares to 18 per cent in the previous quarter.

More than half of companies said sales were down, with only one in four recording an increase. Some 32 per cent said revenue would decline in the next 12 months, an improvement on the previously reported 42 per cent.

The export sector continued to perform strongly, with a net 20 per cent of companies reporting an increase in the value of their exports, the highest rate in more than three years.

"It is quite noticeable that there is a continuing divergence in performance between companies who operate in the domestic economy and those that trade internationally," said Isme's head of research Jim Curran.

"This is reflected in the very positive performance of the export sector in comparison to companies reliant on the domestic marketplace, who are impacted more by weak demand and consumption."