Economy ‘returning to crisis’

THE pandemic’s impact on the economy will be similar to the financial crisis of a decade ago, the bankers’ organisation BPFI has warned.

Domestic demand will plummet by 15% with small businesses – especially in the hospitality sector – worst hit.

The latest Banking and Payments Federation Ireland SME Monitor said: ‘The contraction in domestic demand is estimated to be similar to that experienced in the 2009-2011 period.’

It 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’.

During that slump house prices collapsed, many small businesses went bust and unemployment soared.

Between mid-March and mid-May, the lockdown resulted in more than 1.2million people receiving State support either through the Pandemic Unemployment Payment or the Temporary Wage Support Scheme.

BPFI chief economist Dr Ali Uğur said the Covid-19 crisis has had a disproportionate effect on smaller service-industry businesses.

‘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,’ he said.

‘Revenue Commissioners data shows that at the end of June 2020, nearly 99% of employers utilising the Temporary Wage Support Scheme were SMEs, and 76% of employees on the scheme worked for SMEs,’ he said.

Gross domestic product and domestic demand, which is a better measure of activity in the economy, are expected to fall ‘significantly’ this year.

While recovery began with the easing of restrictions and reopening of most retail outlets in June, many SMEs still faced significant cash-flow issues and Dr Uğur highlighted the importance of Government financial supports.

‘The Government has also launched various schemes to support businesses affected by Covid-19,’ he said. ‘The biggest in potential scale is the yet-to-belaunched €2billion Covid-19 credit guarantee scheme through which the Government plans to provide an 80% guarantee against bank losses on qualifying loans to eligible SMEs.’