Call for energy efficient enhancement measures as costs continue to increase for businesses and reduced consumer demand looms.
Further supports for SMEs in the form of energy efficient enhancement measures will be required as inflationary and price pressures are set to continue, believes Banking & Payments Federation Ireland (BPFI).
Its latest SME Market Monitor warns that as well as price pressures, reduced consumer demand is also on the horizon.
“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”
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
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.
This is 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.
“The Irish economy has recovered from the initial negative effects of the pandemic and is operating close to full employment,” said BPFI CEO Brian Hayes.
“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.”
Hayes pointed out that Budget 2023 announced significant measures to help households and businesses with increasing energy costs in the form of a €4.1bn once-off measures out of the total €11bn. 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.”
Hayes said it is 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,” Hayes added.