A combination of further cost pressures and expected reduced demand from consumers will present a challenge to businesses over the winter months, the Banking and Payments Federation Ireland warns in its latest SME Market Monitor.
It says that businesses that rely heavily on energy, such as transport and manufacturing, will be particularly exposed.
Further spikes in energy costs are in prospect for most firms in 2023, the Monitor warns.
It points to Central Bank research showing that the lag between price changes in the wholesale gas and electricity markets and consumer prices can be around one year.
It notes that the wholesale price of electricity is now 195% higher than it was in August 2021.
"That will result in these recent increases in wholesale prices feeding into increased energy costs for businesses and consumers in 2023," the report says.
The Budget included measures to help households and businesses with increasing energy costs in the form of €4.1 billion in once-off measures.
That included the Temporary Business Energy Support Scheme (TBESS), a €1.25 billion fund that aims to help mainly small businesses, covering up to 40% of the increase in energy bills up to €10,000 per month until February.
"It is likely that current inflationary pressures through energy price increases will continue in the short term," Brian Hayes, CEO of BPFI said.
"And even if the rate of inflation declines, price levels will still be higher in the future. Hence, one-off measures may need to be replaced in the future with structural measures around energy efficiency both for households and businesses so that the economy does not face similar challenges in the years to come given the continued geopolitical uncertainty," he added.
The Monitor also notes that in addition to issues around cost inflation, businesses are increasingly reporting challenges in hiring suitably trained and skilled staff.
It points out that labour market recovery has not been evenly distributed across the various sectors.
"The two sectors worst affected by the pandemic restrictions, accommodation and food services and administrative and support services, lost a combined 21,000 jobs between Q4 2019 and Q2 2022," the report states.
