John Whelan: The number of Irish business failures will rise in this third lockdown

Euler Hermes, the global business insurance and underwriter, indicated that 780 Irish firms will file for insolvency in the year ahead
John Whelan: The number of Irish business failures will rise in this third lockdown

Unless there are additional support measures forthcoming from the public purse through this year and beyond, the third lockdown may cause irreparable damage to Ireland's wide-ranging small business base.

The resurgence in Covid-19 cases and fresh lockdowns in the last quarter of 2020, hit global trade hard. But that wasn't the end of it. 

The extension and further tightening of the business confinement measures in Ireland and across a number of European countries, after the light-touch lockdown failed to contain the virus, suggests that many private companies will not be able to recover from this third lockdown.

Confirming the view that a rapid bounce back is no longer on the cards this year, the World Trade Organization responded to the latest surge in Covid-19 cases worldwide by dramatically cutting back its forecast.

It cut back its forecast for a bounce-back in global trade this year to only 7%, well down from its increase of 20% it had forecast earlier. 

The eurozone-wide economy is also expected to suffer in the first quarter this year, according to the ECB.

However, they should nonetheless recover in the second half of the year, helped by the so-called Next Generation stimulus package by the EU.

Eurozone countries could also be boosted by the anticipated recovery in foreign demand for goods and services.

Both the IMF and the G-20 group of the wealthiest and most powerful countries warn that the global recovery is potentially at risk of derailing, despite the promise of the start of the roll-out of vaccines that is doing so much to help to drive stock markets to new all-time highs.

The speed of the recovery will depend on the rate of distribution of the vaccine and the strength of investment in businesses, as well as the response of employers on investment and hiring. 

However, the situation remains fragile and confidence will be dented if new outbreaks of Covid-19 mutations emerge.

All of that nightmare could force governments around the world to re-impose lockdowns.

The uncertainty of Brexit and its hit to the UK market has also had a severe impact on Ireland’s small and medium-sized firms.

Their exports to the British market fell by an estimated €1.5bn in the past year. 

Many of these SME companies were also severely hampered by Covid-19 lockdowns and are on life support through the Government’s financial handouts. 

A broad-based extension of these temporary support measures across 2020 has so far helped to keep insolvencies at low levels. 

However, unless there are additional support measures forthcoming from the public purse through this year and beyond, the third lockdown may cause irreparable damage to Ireland's wide-ranging small business base.

SMEs typically work on thin margins and don’t have deep financial pockets to weather long-term shutdowns.

Firms in the food and beverage, transport, tourism, and hospitality are particularly vulnerable at this time. 

Rating and corporate insurance corporations now expect solvency risk to become an acute issue globally.

The rating firms expect the "domino knock-on" to sweep beyond failed businesses to healthy ones. 

Euler Hermes, the global business insurance and underwriter, in its global insolvency index for 2021 which it published in the middle of last month, indicated that 780 Irish firms will file for insolvency in the year ahead.

That would be an increase of 37% on the pre-Covid pandemic year of 2019. 

They also forecast a longer-term impact of the pandemic extending into 2022, when insolvencies are expected to reach 900.

The timing of the phasing out of support measures by the Government remains a critical issue and is a matter of concern for many businesses. 

Any new extension to the support measures and increasing the size of the aid packages would help matters considerably.

It would help save businesses and mean fewer insolvencies in the short term.

John Whelan is a leading consultant on trade and business. He is also managing partner at the Linkage–Partnership, an international trade consultancy.

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