The latest SME Monitor from the Banking and Payments Federation Ireland warns that Covid-19 will have a significant negative impact on the Irish economy and especially on SMEs.
The report notes that both gross domestic product and domestic demand 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 said service-industry SMEs have been disproportionately impacted by the pandemic.
"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 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," he said.
"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," he added.
