COVID-19 Crisis Bites for Irish SMEs
15th September 2020
The COVID-19 pandemic represents the most severe economic shock to the Irish economy in living memory. The speed and scale of the disruption to economic and social life are outside any experience bar wartime. While dealing with the health implications of the pandemic was the highest priority, the economic cost of the restrictions is substantial.
The SME sector makes up the vast majority of firms operating in Ireland and employs over one million people (68.4 per cent of total employment) according to the CSO (2019). Research published today by the ESRI finds that around two-in-five micro-sized firms and one-in-two small and medium-sized firms faced a revenue shortfall (where revenue fell below expenditure on a monthly basis) in the main COVID-19 lockdown period from March to June 2020.
The total shortfall across SMEs over this period is estimated to be between €6bn and €10bn. Firms had some cash resources built up prior to the pandemic that they are likely to have been used to bridge part of the gap, but this would not be sufficient to cover all losses. Even after their own resources are used, between €2.2bn and €4.3bn of a shortfall was accumulated over these three months.
The research was undertaken as part of a joint programme of work between the Department of Finance and the Economic and Social Research Institute. It assesses the financial resilience of Irish SMEs and explores the extent to which they have faced revenue shortfalls (where revenue falls below expenditure on a monthly basis) since the onset of the COVID-19 pandemic. It also examines how these SME revenue shortfalls might evolve over the full course of the year to the end of 2020 depending on the broader economic environment.
Looking forward to the end of 2020, scenario estimates for the total revenue shortfall for SMEs could amount to between €8bn and €15bn, depending on the epidemiological situation. Again, running down internal resources would cover some of this shortfall for firms but would leave between €4bn and €8bn in uncovered losses for the sector.
Conor O’Toole, an author of the report and a Senior Research Officer at the ESRI, said: “The COVID-19 pandemic has been an unprecedented economic shock for Irish SMEs. Nearly one in every two small firms suffered a loss during the lockdown phase and this amounted to between €6bn and €10bn euro across these enterprises. While many firms had access to their own cash savings to help survive the period, these buffers are likely to deplete leaving many firms struggling to survive.”
Martina Lawless, author of the report and a Research Professor at the ESRI, said: “This research gives a picture of the extent to which SMEs have been impacted by the pandemic. While the estimates for total accumulated losses estimates are extremely substantial, the results also show that these could have been much higher if there had not also been significant reductions in firm expenditure supported by the wage subsidy scheme and deferrals of other payments.”
You can download the full report from the ESRI here>>