In a report released this week by the Central Bank of Ireland it found, lower turnover, unpaid invoices and limited availability of capital from the banks led many small and medium sized enterprises (SMEs) to lay off staff, defer payments or cease trading in recent months.
The survey went on to suggest 24% of firms had ceased trading temporarily or permanently in April but this declined to 11% by May 31st.
The worst hit sector by April 19th was accommodation and food (88%), followed by construction (71%). Even as firms began to trade again 62% of firms in the accommodation and food sector were still not trading as of May 31st, it said.
Furthermore, banks report SME lending standards have tightened in the first half of the year and are also expected to tighten slightly in the third quarter.
The impact on the labour market has been historically severe. From a position of full-employment prior to the outbreak, unemployment increased to 28.2% on a COVID-adjusted basis1 in April, before falling to 26.1% in May. However, the impact of labour market developments on household incomes has been mitigated by the provision
of large-scale income support by the State. At its peak, approximately 1. 2 million people were in receipt of some form of income support – some 600,000 via the pandemic unemployment payment (PUP); 400,000 via the temporary wage subsidy scheme (TWSS) and 200,000 via the Live Register.
The report shows that the shock to firms’ turnover has been huge (21% of firms report turnover is 75% lower), but differs by sector. Firms with the most constrained revenue have reduced their non-personnel costs the most, those reporting revenue declines of over 50% have reduced non-personnel costs by 43%. But 39% of firms have not reduced costs, increasing to 60% where revenues declined 10-49%.
Also notable, the Central Bank says, is the “substantial amount” of unpaid invoices owed to firms. Survey evidence suggests 39 per cent of firms have unpaid outstanding invoices. “Unpaid outstanding invoices amount to 20% of 2019 revenue at the median, which may pressure cash flow or amplify shocks upon company failure,” the report says.
Unemployment will return to its pre-Covid-19 levels in late 2023 and only then if there is no new outbreak of the disease, while house building will be severely disrupted for a number of years, the Central Bank has predicted. Its latest report also sees the budget deficit swelling to over €23 billion this year before the additional costs under the stimulus measures planned by Finance Minister Paschal Donohoe this summer are taken into account. And the deficit will top €30 billion if the pandemic makes an early return, according to a worst-case outcome.
In conclusion, the Central Bank report states “As well as its high and rising human costs, the coronavirus pandemic has triggered a severe economic shock that is being felt in Ireland and around the globe. At present, there is still major uncertainty over the economic outlook. The timing and pace of the recovery will depend on the evolution of the virus and on how households and businesses respond once the containment measures are lifted, as well as on policy actions in Ireland and
around the world.