Domestic demand to decline by 15% in 2020 – similar to 2009-11
SMEs, especially hospitality, disproportionately affected
Two thirds of accommodation and food SMEs deferred or changed supplier, Revenue, or property-related payments
The latest BPFI SME Monitor warns that Covid-19 will have a significant negative impact on the Irish economy and especially on the SMEs that employ most of the country’s private sector workers.
The report notes that most of the economy shut down between mid-March and mid-May and more than 1.2 million people were receiving state support payments through the Pandemic Unemployment Payments of the Temporary Wage Support Scheme. Both gross domestic product and domestic demand, which is a better measure of activity in Ireland’s open economy, are expected to fall significantly in 2020, with the contraction in domestic demand estimated to be similar to that experienced in the 2009-2011 period.
Commenting on the impact on businesses, Dr. Ali Uğur, Chief Economist, BPFI noted the disproportionate effect of the pandemic on service-industry SMEs:
“Given that the labour-intensive services sectors such as retail, food and beverage, accommodation, tourism and travel are the most affected sectors due to the pandemic, this creates a disproportionate effect on SMEs, evident in the number of business closures, reduced turnover, falling profits and most of all in terms of the numbers of unemployed. Revenue Commissioners data shows that at the end of June 2020, nearly 99% of employers utilising the TWSS were SMEs and 76% of employees on the scheme worked for SMEs.”
While recovery began with the easing of restrictions and reopening of most retail outlets during June, many SMEs still faced significant cash flow issues and Dr Uğur highlighted the importance of government financial supports:
“Given the significant drop in both turnover and income, SMEs seem to have taken a range of measures to manage their cash flows and reduce their costs. In a recent CSO survey, some two-thirds of the responding SMEs in the accommodation and food services sector indicated that they took measures such as deferred or changed payment to suppliers, the Revenue Commissioners or property related expenses.”
“The Irish government has also launched various schemes to support businesses affected by Covid-19…The biggest in potential scale is the yet-to-be launched €2 billion Covid-19 credit guarantee scheme through which the government plans to provide an 80% guarantee against bank losses on qualifying loans to eligible SMEs…Given continued uncertainty around the future outlook due to the pandemic and changing public health measures, it is likely that this scheme will be an important part of the supports provided to SMEs particularly in the third quarter of 2020.”
The BPFI SME Monitor is available on the BPFI website here.
Notes: Banking & Payments Federation Ireland (BPFI) represents the banking, payments and fintech sector in Ireland. Together with its affiliates, the Federation of International Banks in Ireland and the Fintech & Payments Association of Ireland, BPFI has some 100 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.
Contact: Russell Bryce, Head of Public Policy Engagement and Research, 0851019444 or firstname.lastname@example.org