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SME Market Monitor – October 2022

Further supports for SMEs in the form of energy efficient enhancement measures required as costs continue to increase for businesses and reduced consumer demand looms

Wednesday 12th Oct 2022 – The latest SME Market Monitor published by Banking & Payments Federation Ireland (BPFI) today has highlighted how further supports for SMEs in the form of energy efficient enhancement measures will be required as inflationary and price pressures are set to continue and reduced consumer demand looms.

Despite the continued increase in economic activity in 2022 and employment levels reaching their highest ever levels, the 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.

Reduced demand from households as both consumers and businesses face increased energy costs during 2023

With the economic outlook in the short term having deteriorated relative to earlier expectations mainly due to inflationary pressures affecting household incomes the Monitor explains that businesses, particularly those operating in sectors which rely heavily on energy such as transport and manufacturing, are exposed to further cost pressures in addition to potential reduced demand from households given their focus on essential expenditure in the short term, particularly due to higher energy bills over the winter.

Businesses can also expect to face continuing increased energy costs in 2023 along with consumers. With the wholesale price of electricity now 195% higher than in August 2021 recent Central Bank of Ireland research shows that the lag between price changes in the wholesale gas and electricity markets and consumer prices can be around one year resulting in these recent increases in wholesale prices feeding into increased energy costs for businesses and consumers in 2023.

Price levels set to remain high in the future even if inflation declines

Commenting on today’s publication, Brian Hayes, Chief Executive, BPFI said: The Irish economy has recovered from the initial negative effects of the pandemic and is operating close to full employment. However, both consumer and business sentiment in the short term have deteriorated mainly due to significant inflationary pressure that is likely to increase costs further for businesses and reduce real disposable incomes of households. Budget 2023 announced significant measures to help households and businesses with increasing energy costs in the form of a €4.1 billion once-off measures out of the total €11 billion. This includes the Temporary Business Energy Support Scheme (TBESS), 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 2023. Meanwhile, the Ukraine Credit Guarantee Scheme will provide low cost working capital especially in energy saving measures to SMEs where loans will be available from finance providers including banks, non-banks and credit unions. A similar credit guarantee scheme during the pandemic helped almost 10,000 SMEs with access to finance and BPFI members stand ready to support businesses through the new scheme”

“It is however likely that current inflationary pressures through energy price increases will continue in the short term. 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, such as the Ukraine Credit Guarantee Scheme, so that the economy does not face similar challenges in the years to come given the continued geopolitical uncertainty,” Mr Hayes concluded.

Contact: Jillian Heffernan, Director of Communications, 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.

The SME Monitor October 2022 is available for download below in PDF format.