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SME Market Monitor – April 2022

Rocky road to recovery ahead for many SMEs who face imminent end of pandemic supports and rising cost pressures

Accommodation and food services sector 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

Wednesday 6th April 2022 – The latest SME Market Monitor published by Banking & Payments Federation Ireland (BPFI) today has outlined the rocky road to recovery ahead for many SMEs due to cost pressures caused by inflation and the end of pandemic state supports for the majority of business at the end of this month.

Despite the wider economic recovery and growth evident since the second half of last year, the Monitor highlights how this is not fully reflected on all sectors. The accommodation and food services sector in particular is pinpointed as facing significant challenges with activity in the sector at the end of 2021 down by around 15% in terms of value and 20% in terms of volume compared to the first quarter of 2020, a performance which now looks set to be further exacerbated as cost inflation continues to rise and with state supports due to run out in a matter of weeks.

The Monitor outlines how significant state supports have been provided to both employees and employers during the pandemic with over €7.68 billion 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, and the share of employees receiving EWSS in the accommodation and food sector was much higher, at 70%. This scheme is due to end for most businesses at the end of this month.

In addition to direct supports from the government, 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 Monitor 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.

Speaking on the today’s monitor and the outlook it provides for SMEs, Brian Hayes, Chief Executive BPFI said: “With a record number of people in employment, full-year data for 2021 shows the Irish economy grew by 13.5%. 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. There are two key challenges on that road, the first of which is the ending of the EWSS which has been a lifeline for many businesses over the last two years, supporting one in ten jobs, and which will end at the end of this month. Coupled with this is 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. And 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. This is likely to feed into higher average labour costs for these businesses, mainly made up of SMEs, as well as wage growth expectations by employees due to higher consumer inflation. This in turn could push up prices charged by the effected sectors leading to further services inflation in the wider economy.”

“As our Monitor outlines, there are different views in the markets as to how long the inflationary pressures will exist, however the European Central Bank’s most recent assessment shows that most of the current inflation will decline towards the end of this year and will be a lot lower in 2023, given that it is a supply shock, however as an economy we will have to live with higher price levels even if  prices rise more slowly in the future.”    

The BPFI SME Monitor can be found on the BPFI website here.

ENDS/

Contact: Jillian Heffernan, Head of Communications, jillian.heffernan@bpfi.ie 087 9016880

About BPFI: 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 100 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.

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