A new report highlights the rocky road to recovery ahead for many small and medium sized businesses, due to cost pressures caused by inflation and the end of many pandemic state supports at the end of the month.
Despite the wider economic recovery, the latest SME Market Monitor published by Banking & Payments Federation Ireland (BPFI) reveals that this recovery has not been evident across all sectors.
It states that the accommodation and food services sector is one of the hardest hit, with 70% of employees in the sector receiving the Employment Wage Subsidy Scheme which is due to run out in a matter of weeks
The report reveals that activity in the sector at the end of 2021 was down by around 15% in terms of value and 20% in terms of volume compared to the first quarter of 2020.
Pandemic supports
The monitor reveals that over €7.68 billion has been delivered to businesses through the Employment Wage Subsidy Scheme (EWSS) up to the 24th of March.
Around €1.9 billion of this was accounted for by businesses in accommodation and food services.
Some 258,000 employees were on the scheme at the end of February 2022 - around 10% of the total employment in the Irish economy.
This scheme is due to end for most businesses at the end of this month.
In addition to direct supports from the government, the report states that around 95,000 individual businesses were availing of tax debt warehousing with a total of €3.1 billion of tax liabilities by the end of February.
Businesses availing of this support have until April 2023 to pay back these liabilities before interest is charged.
The report shows how nearly a third of eligible companies in the accommodation and food services sector have warehoused their tax liabilities, the highest share across the different sectors, with the sector accounting for 13% of the total warehoused tax debt.
"With a record number of people in employment, full-year data for 2021 shows the Irish economy grew by 13.5%," said Brian Hayes, Chief Executive of BPFI.
"However, as our SME Monitor clearly demonstrates this recovery is not consistent across the board and many sectors, particularly businesses in the food and accommodation services sector, face a difficult road to recovery as we emerge from the pandemic," he added.
Inflation
Mr Hayes said the soaring rate of inflation, which was already running high due to supply shocks from the pandemic, but is now being pushed up further due to the war in Ukraine, especially for oil and gas.
"While rising inflation is something which will hit all sectors particularly as we see higher energy prices in the coming months, the food and accommodation services sector is markedly exposed when we consider that in a matter of weeks that sector which has been so heavily reliant on the EWSS will no longer be able to avail of it," he said.
He said this is likely to feed into higher average labour costs for these businesses, which are mainly made up of SMEs.
"This in turn could push up prices charged by the effected sectors leading to further services inflation in the wider economy," Mr Hayes said.
