The latest figures from the Central Statistics Office (CSO) – which indicate that the volume of retail sales rose by 3 per cent on an annual basis in December – have been described as “disappointing” by the Irish Small and Medium Enterprises Association.

However, there was more positive news in the form of survey showing the momentum of economic recovery is slowly gathering pace in terms of business activity levels.

More than half of businesses increased their output in the final three months of last year and there has been a marked improvement in the sentiment of business leaders towards the prospects for the wider economy, according to the KBC Bank/Chartered Accountants business sentiment survey.

The increase in business activity levels towards the end of 2013 is the most widespread since the summer of 2007, according to the study. It found the biggest improvements were in the areas of manufacturing and the food sector.

Construction firms also reported increases in activity, with five times as many builders reporting increased levels of activity compared with those reporting declines.

About 61 per cent of the companies surveyed expect their levels of activity to increase in the first quarter of this year, the study found.

Its authors, including KBC's chief economist Austin Hughes, said this pointed to "progressive improvement rather than an explosive change in the business climate".

Mr Hughes said it was a “step up in activity, rather than a sea change”.

About 51 per cent of the companies surveyed are focused on expansion, with 44 per cent focused on stabilisation for the year ahead.

Recovery
Mr Hughes added that the recovery would have to "run a lot hotter" before unemployment figures would come down significantly.

The latest figures from the CSO indicate that, with volatile car sales stripped out, retail sales rose by 1.3 per cent in December compared with the previous month, and grew by 3 per cent on an annual basis.

The sectors with the largest monthly increases were books, newspapers and stationery, which enjoyed a 4.2 per cent bounce in sales, and pharmaceuticals, medical and cosmetic goods which saw sales rise by 3.8 per cent.

The sectors with the largest monthly falls were clothing, footwear and textiles, which saw sales drop 1.1 per cent, and fuel, which saw a 0.1 per cent drop in trade.

Mark Fielding, chief executive of the Irish Small and Medium Enterprises Association, described the figures as “disappointing”, adding that high costs were continuing to “crucify” small retailers.

Investec’s Emmet Gaffney said: “Anecdotal evidence regarding Christmas trading had been mixed (despite the discernible improvement in domestic indicators over recent months), so expectations were somewhat tempered prior to today’s release.

“However, it appears that for the second year running, the anecdotal evidence has been wide of the mark.”