Businesses worst fears realised as 2021 gets off to terrible start
It wasn’t supposed to be like this.
When Irish businesses did what was asked of them and substantially shut up shop in mid-October it was in pursuit of a single aim.
They thought a second (and perhaps final) lockdown would allow them to open in time for Christmas, make the most of the festive trading season and enter 2021 in better shape, ahead of the rollout of vaccines that would in time bring this living nightmare to an end.
Instead, they reopened for a matter of weeks, before the levels of Covid-19 in the community began to soar because the incidence of the virus had not been supressed to a sufficient level when people resumed socialising.
And so pubs and restaurants were once again forced to close on Christmas Eve, with non-essential retail following soon after.
Now, the worrying deteriorating vista of exponentially increasing numbers of positive Covid cases, coupled with record numbers of patients with the virus in hospital, has forced the Government’s hand further.
In a bid to reduce movement in the economy and society, all but essential construction is to close, click and collect retail is to end and schools and childcare are to remain substantially shut.
This in itself will have a significant negative impact on productivity as working parents are forced to resume home schooling duties.
When they last had to do this in March, April, May and June, mass confusion and the cancellation of events, contracts, projects and spending, as well as the move to remote working, meant expectations around productivity were initially low among employers.
That is no longer the case as those working from home and their employers have become accustomed to “the new norm”, raising the bar of what is expected of them.
This all coupled with the now familiar “stay at home” mantra from the Government means that save for essential work, large parts of the economy are once again entering the deep freeze.
Business leaders have adopted the responsible stance of recognising the seriousness of the health emergency and backing the national call to get virus back under control.
But the big unanswerable question they now have is how long will this take?
The Tánaiste indicated last night that businesses that are now shut should be prepared to remain closed until the end of March, although he did reiterate that the situation would be reviewed at the end of January as promised.
It is the worst possible situation for the business sector to be facing at the start of a new year that had promised to mark the start of recovery.
Compared to European peers, the Irish economy had looked to be well primed for a rebound, off the back of a stronger than anticipated performance in 2020 and a last-minute Brexit trade deal.
Just last month, the ESRI predicted the economy would end the year 3.4% larger despite record unemployment, and would expand by a further 4.9% this year.
Exchequer returns published on Tuesday also showed the national finances had performed more strongly than previously thought, with the estimated general Government deficit for 2020 now looking like it will come in at €19 billion, better than the Budget forecast of €21.6 billion.
That will give the Ministers for Finance and Public Expenditure a little more latitude when it comes to dealing with the latest challenges to emerge.
And they’ll need it.
Plans to reduce the levels of the Pandemic Unemployment Payment (PUP) and Employment Wage Subsidy Scheme have now been pushed back to the end of March at least.
The Government now expects that by the end of this month, there will be 450,000-500,000 people claiming the PUP, up from 335,000 now, and many tens of thousands more still dependent on state wage subsidies.
Demands on the Government’s other supports, like the Covid Restrictions Support Scheme, commercial rates waivers and loan schemes are also likely to jump.
Not surprisingly though, business leaders have called on the Government to do yet more to keep firms afloat while they tread water, with both Ibec and Chambers Ireland pointing out that the exchequer has the necessary resources to do so.
Without it, Chambers predicts that the growing debt burden experienced by businesses will “likely trigger a wave of insolvencies and job losses that will do permanent damage to local economies throughout the country, potentially coinciding with when we are able to return to some form of normality.”
And that now has to be the big fear.
How much longer can many firms hang on in such uncertain, damaging and desperate circumstances?
Vaccines may be on the way, but for many in business the shot in the arm they will bring will now prove too late.
