Hospitality sector faces ‘rocky road to recovery’, SME report finds

End of State pandemic supports this month coincides with inflationary pressures

Small and medium enterprises (SMEs), especially those in the hospitality sector, face a “rocky road to recovery” due to inflation pressures and the imminent end of State pandemic supports for most, a banking industry report has found.

Despite the wider economic recovery from the crisis, it is not fully reflected across all sectors, according to the SME market monitor published by Banking & Payments Federation Ireland (BPFI), with the accommodation and food services sector in particular contending with “significant challenges”.

Activity in the sector at the end of 2021 was down by about 15 per cent in value and 20 per cent in volume terms compared to the first quarter of 2020, a performance that BPFI said “now looks set to be further exacerbated as cost inflation continues to rise” and State pandemic supports run out for the majority of business at the end of this month.

Of the more than €7.68 billion delivered to businesses through the employment wage subsidy scheme (EWSS) up to March 24th, about €1.9 billion supported businesses in accommodation and food services.

Rising inflation

Some 258,000 employees were on the scheme at the end of February 2022, or about 10 per cent of the total employment in the Irish economy, but the share of employees receiving EWSS in the accommodation and food services sector was much higher, at 70 per cent.

"While rising inflation is something which will hit all sectors, particularly as we see higher energy prices in the coming months, the food and accommodation services sector is markedly exposed when we consider that, in a matter of weeks, that sector which has been so heavily reliant on the EWSS will no longer be able to avail of it," said BPFI chief executive Brian Hayes.

“This is likely to feed into higher average labour costs for these businesses, mainly made up of SMEs, as well as wage growth expectations by employees due to higher consumer inflation,” Mr Hayes said.

“This in turn could push up prices charged by the affected sectors leading to further services inflation in the wider economy.”

In addition to direct supports, about 95,000 individual businesses were availing of tax debt warehousing, with a total of €3.1 billion of tax liabilities by the end of February.

Businesses availing of this support have until April 2023 to pay back these liabilities before interest is charged.

Almost a third of eligible companies in the accommodation and food services sector have warehoused their tax liabilities, the highest share across the different sectors, with the sector accounting for 13 per cent of the total warehoused tax debt.