Large number of firms risk collapse under second lockdown

Nearly two-thirds of businesses fear another lockdown, while one in five is trading at a loss, a CSO survey has found.

KBC Ireland economist Austin Hughes said the figures showed that most firms have proved surprisingly resilient – but a large minority would risk collapse if a Covid-19 surge forced a second lockdown.

The survey, he said, pinpointed “fear that reflects their experience of the first lockdown. They survived that and have some capacity to work their way out of the damage from one lockdown”.

“But strike two and many of them are out. A second lockdown would make their business unviable,” he said.

Even firms reporting strong trade say social-distancing requirements have left them struggling to post a profit.

At the Liberty Grill in Cork, the usual outdoor queues for brunch and lunch have been replaced by an app-driven queue-management system called WalkUp. The number of tables has been cut in half to eight, and the staff reduced from 17 to 10, all paid by the Temporary Wage Subsidy Scheme (TWSS).

The diner’s manager, Jason O’Sullivan, says virtually all tables are booked solid by locals and staycationers as early as 8:30am. But social distancing means sales volume is still less than half what it would be in normal times.

“If we’re not full from the morning to the evening, then we won’t make ends meet,” he said. “With the wage subsidies we’re breaking even.”

The Liberty Grill is surrounded by pubs and clubs – most of them still closed. Mr O’Sullivan fears that many of these once-thriving social hubs will struggle to reopen the longer they are deprived of trade.

“Two pubs are open out of 15 to 20 pubs along Washington Street,” he said. “It will get a bit grim when tourist season dies down and reality looks in. It will be a very different landscape come the spring.”

Mr Hughes said the CSO’s finding that 96pc of firms are currently open is positive – but masks the fact that certain sectors face an existential crisis that will require precisely targeted grants to manage.

“Half of businesses are still saying that the situation is effectively normal. But certain types of firms are struggling to keep their head above water,” he said. “They will need support beyond the July stimulus.”

In July, the Government unveiled new spending of €5.4bn to boost the economy.

The CSO survey was published yesterday before the Government announced a new round of restrictions.

Responses from 750 firms reveal an economy almost evenly split between those trading relatively normally and those struggling to survive.

Nearly 60pc said they have enough finance to survive at least six months. Half said they had taken no State aid since the pandemic began.

Of those seeking aid, their overwhelming choice is to take grants and avoid loans. Nearly half have staff on the TWSS, and 11pc have taken the local council-issued Restart Grant. Only 2pc have received finance via the Working Capital Loan Scheme.

When asked to identify their biggest concerns, 64pc picked ‘an increase of Covid-19 cases leading to another lockdown’. Weak turnover, cashflow problems and rising costs ranked as lesser worries.

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Draghi says stimulus can aid recovery after Covid but warns on ‘bad’ debt

Former European Central Bank (ECB) president Mario Draghi has warned governments to use the massive stimulus they’ve deployed in the coronavirus pandemic to upgrade their economies or face the risk of another debt crisis.

In his first high-profile appearance since leaving his post in October, Mr Draghi called for “credible” economic policies to avoid disillusionment among the young, who will have to repay the cost of fighting the coronavirus. He also praised the European Union’s deal to issue joint debt to fund the recovery.

He compared the need to rebuild the economy after the pandemic to the aftermath of the Second World War.

“We should take inspiration from those who were involved in rebuilding the world, Europe and Italy after World War II,” he said.

“The debt created by the pandemic is unprecedented and will have to be repaid mainly by those who are young today,” he said. “It is therefore our duty to equip them with the means to service that debt.”

European institutions, savers and financial markets will only fund “good debt” if it’s being used for investment in human capital, crucial infrastructure or research, he said at a Catholic convention in Rimini, Italy yesterday.

“If, however, debt is used for unproductive purposes, it will be seen as ‘bad’ debt and its sustainability will be eroded,” he said.

“Low interest rates are not in themselves a guarantee of sustainability.”

Mr Draghi’s comments come as governments globally – concerned about their rising debt burdens – debate whether to extend their crisis support. They’re trying to strike a balance between preventing mass unemployment that could cause lasting damage, and restructuring their economies for the post-pandemic world.

Mr Draghi has recently been appointed to a Vatican body advising Pope Francis on social and economic affairs.

While the former ECB chief has kept a low profile since returning to Italy, he is routinely mentioned in the press as a potential prime minister or president should the country fall into one of its recurrent political crises.

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Euro area sheds almost half of jobs created since 2013

The coronavirus pandemic has wiped out nearly half of the 12 million euro-area jobs created in the seven years since the last recession, in another sign of the enormous damage wreaked on the economy.

Employment slumped by 4.9 million in first half of the year, almost all in the second quarter when the most stringent measures to contain the spread of the virus were in place.

More declines are likely. Generous furlough programs across the 19-nation bloc have so far contained the fallout on the labour market from a record economic contraction, with a rise in unemployment that is more modest than in the US.

Governments are now facing tough choices on how to wind down those programs though, as they weigh ballooning debt against the consequences of massive job losses for the economy.

Even the possibility of lost wages can cause consumers to increase their savings, undermining the recovery. The European Central Bank predicts an increase in joblessness as not all people in short-time work schemes or temporary layoffs will return to their previous posts.

In the US, with a similar population to the eurozone, employment is down more by than 12 million since the end of 2019.

The UK reported last week that payrolls have plunged by more than 700,000 since March. Chancellor of the Exchequer Rishi Sunak is planning to gradually phase out wage support there – though pressure is mounting to extend it – after spending £35bn (€38.73bn) on the programs so far.

With the virus disrupting global travel, airlines are among the companies planning the most wide-ranging job cuts. Deutsche Lufthansa AG has set a goal of slashing 22,000 full-time positions and warned that compulsory dismissals are likely. Air France-KLM is planning thousands of job cuts to secure government aid. German electronics retailer Ceconomy AG on Thursday announced plans to cut 3,500 jobs. A survey by the Ifo Institute showed this week that companies in Europe’s largest economy don’t expect business to normalize for another 11 months on average.

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Property prices rise again in June despite pandemic

Property prices rose marginally in the year to June despite the pandemic causing massive disruption to the housing market.

Prices were up by just 0.1pc in June when compared with the same month last year.

House building has been heavily set back by the virus, with estate agents reporting a fall off in viewing activity.

The rise in June compares with an increase of 0.3pc in the year to May, according to the Central Statistics Office.

However, there was a fall of 33pc in the number of homes bought in June compared with the same month last year.

In Dublin, the prices of homes were down 0.7pc in the year to June.

The highest house price growth in Dublin was in Dun Laoghaire-Rathdown at 0.1pc, while South Dublin saw a decline of 2.7pc.

Outside of Dublin prices rose by almost 1pc in the year to June.

The region outside of Dublin that saw the largest rise in house prices was the South-West at 6pc. At the other end of the scale, the South-East saw a 0.7pc decline.

Just 2,268 purchases of dwellings were filed with Revenue in June.

This represents a 33.1pc decrease compared to the 3,391 purchases in June 2019.

But it is up on the 1,937 purchases in May this year.

The total value of transactions filed in June was €650m, the CSO said.

The median, or typical, price paid for a property in the year to June was €260,000.

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Changing to four-day week will save jobs, says German union chief

The head of Germany’s largest trade union has proposed a four-day week to protect jobs threatened by digitalisation and the coronavirus-induced economic slump.

Jorg Hofmann, head of IG Metall, said he planned to negotiate the reduced working hours for his members in wage talks with major players in the German automotive and mechanical parts sectors.

“The four-day week would be the answer to structural shifts in sectors such as the automotive industry,” he told the Suddeutsche Zeitung newspaper.

The proposal “would allow industrial jobs to be retained instead of being written off”, he insisted.

Digitalisation and the shift towards electric mobility have uprooted the German automotive industry, with major manufacturers planning to cut jobs in coming years.

Mr Hofmann, whose union represents 2.3 million Germans, claimed a four-day week would allow companies such as Daimler and Bosch “to retain specialist workers and save money on redundancy packages”.

Initial talks with industry representatives were “met with widespread approval”, he said.

But he warned there would also have to be wage compensation “so that employees can afford it”.

Recovery

German industry has experienced an unexpectedly robust recovery since the height of the pandemic when production was run down to a minimum, with orders rising 28pc in June.

But the prospect of a V-shaped recovery has not stopped struggling car makers working on restructuring plans.

Daimler is reported to be on the verge of expanding job cuts to 30,000 globally. BMW is planning to cut 6,000 of its 120,000 staff worldwide, while Volkswagen announced up to 7,000 job losses last year.

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Alaskan model may help restart the aviation industry

The aviation industry is staring into a winter of devastation but the answer could lie in colder climes.

An Alaska-style safe travel model could be utilised, amid warnings Irish airports desperately need support measures for the crippled aviation sector.

Traffic has collapsed by 97pc at Dublin, Cork, Shannon and Ireland West-Knock airports since the pandemic erupted.

Industry sources are concerned that if tight travel restrictions continue into the winter months, then the industry will be decimated.

Aviation officials have urged the Government to consider special measures to support safe travel.

It came as Ireland now faces having to react to a range of varied measures introduced across the European aviation sector.

All Irish passengers leaving Dublin Airport on Emirates Airlines must now have an official Covid-19 screening test completed prior to travel for admission to the United Arab Emirates.

Brussels Airport is expected to shortly introduce Covid-19 testing for all ‘red zone’ passengers with the installation of a special mobile testing facility.

Heathrow Airport, which boasts the busiest Irish air-travel routes, has backed calls for pre-flight Covid-19 testing on all medium- and long-haul routes.

Germany has also unveiled a special programme of financial supports for its airports.

Now, the Government has been urged to consider the Alaskan safe travel model – hailed as the most comprehensive outside of New Zealand’s mandatory 14-day quarantine period for all air travellers. Under the Alaskan model, all non-residents must arrive with a negative Covid-19 test conducted within 72 hours of travel.

A special Alaska Travel Portal has been created to allow for test results to be uploaded digitally.

Any non-resident arriving without such a test will be required to undertake one at a cost of €200 and then to quarantine while the results are awaited.

Senator Jerry Buttimer said it was vital Ireland got people safely flying again.

“I believe the Alaskan model offers enormous advantages for Ireland. It is vital that people are reassured about the safety of flying and that while we kick-start a critical component of the economy, public health is also protected,” he said.

“I will be discussing this model with Transport Minister Eamon Ryan and the clear advantages it offers for Ireland.” Cork Chamber of Commerce policy director Thomas McHugh said that the aviation industry was critical for key sectors of the Irish economy.

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Protecting our vulnerable startups and SMEs is now more vital than ever

There is a popular trope in the narrative surrounding the origins of a successful enterprise, usually centring around working from a back bedroom, the kitchen table or from the garden shed.

But the truth about successful start-ups and SMEs is usually a lot more prosaic.

On top of a great idea and business plan, there is hard work, long hours and a base from which to grow your business.

And for more than 2,000 Irish start-ups and SMEs around the country, those bases have been enterprise centres, either publicly funded or privately run, that offer the first site of operations and incubate Irish firms.

Founders take their first steps with desk and office space in these centres and embark on their entrepreneurial journey surrounded by a network of others facing the same challenges. The centres vary from simple networked office space to those offering a full suite of complementary supports for founders, such as funding pathway supports and structured mentoring and networking.

Those firms may grow into High Potential Start-Ups and scale to enterprise level, or they may remain as micro or SME ventures. All these firms have two things in common: they create real, local jobs and generate wealth around the regions.

But just as Covid-19 has sent thousands in mainstream work back to their kitchen tables to work, it has crippled the ecosystem that grows our grass-root businesses.

New ventures are not cash-rich, and the health and safety protocols are leaving enterprise centres with shortfalls in client rents or unable to meet the capital expenditure for PPE modifications or AV upgrades, for example.

These issues are why Enterprise Ireland, as announced by Tánaiste Leo Varadkar earlier last week, has launched the €12m Enterprise Centre Fund. We are moving to secure the ecosystem with grant aid of between €10,000 and €150,000 for enterprise centres. The grants will meet up to 80pc of costs for a business plan detailing how they will meet the challenges of the next 12 months. And, it is not just fixed costs or capital expenditure; the fund has provision to meet some salary costs for the year ahead.

It is a crucial plank in our strategy to safeguard the grassroots of the economy, and enterprise centres play a pivotal role. There are around 180 enterprise centres around Ireland, with some two-thirds being not-for-profit and grant-aided. Some are embedded in third-level educational institutions, and the remainder are privately run. We would expect the successful enterprise centre applicants to embrace the potential to develop new services or working environments for their client companies caused by the Covid disruption. We would advise the first port of call for an enterprise centre manager to meet with Enterprise Ireland to assess their needs on the funding pathway.

Let there be no mistake; the economic costs of Covid are real. The recession experienced by our nearest neighbour and trading partner, the UK, is the worst since records began.

Our enterprise centres are the bases for thousands of jobs in Ireland. While we don’t measure their success on their ability to nurture unicorn companies, we acknowledge they are a vital part of our grassroots infrastructure. And together with the IDA, the Local Enterprise Office network and agencies like Western Development Commission, Enterprise Ireland and its statutory partners strive to ensure balanced, regional development. Ultimately, it is regional development that creates a long-term sustainable economy.

Covid restrictions have invariably brought about conversations regarding the way we think about work, commuting and sustainability. The pandemic has also brought an opportunity to rethink parts of the economic ecosystem.

Will enterprise centres use the fund just to survive or to thrive? What we know is that Irish innovation will find new ways of work, new ways of networking and new ways of doing business.

It is up to us to support it.

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Staycations and bad weather helped to boost demand for gas

Staycations and the reopening of hospitality and leisure venues have spurred gas demand to near normal levels.

But while overall gas demand climbed 4.1pc in July compared to June, it remains 3.7pc lower than a year ago, according to Gas Networks Ireland.

Gas demand in the hospitality and leisure sector was just 1pc below where it was 12 months ago in July.

But in the construction sector, gas demand last month was up 26pc compared to June – but was still 40pc lower than it was in July of last year.

The figures from Gas Networks Ireland, which is part of semi-State company Ervia, also show that gas demand from large businesses was up 4.1pc last month compared to July 2019, following a significant decline during the lockdown.

In the food and beverage sector, demand for gas in July was 3.2pc higher than a year earlier. Demand in the sector remained strong during the lockdown, according to Gas Networks Ireland.

It also said that residential gas demand climbed last month as poor weather prompted consumers to turn on the heating.

Residential demand is now ahead of 2019 levels.

“Some sectors are returning to the year-on-year growth we saw in the first quarter, while others continue to see an element of the fall-out from Covid-19,” said Gas Networks Ireland’s head of regulatory affairs, Brian Mullins.

“The increase in energy demand reflects the Irish economy beginning to reopen,” he added.

“Energy demand is an important indicator of economic activity and this is a positive signal for our economy.”

Gas Networks Ireland said that gas provided the majority of Ireland’s power generation requirement last month, averaging 58pc for July and peaking at 80pc.

For the first half of 2020, gas provided 50pc of all power generation, and wind provided 39pc. Year on year, gas demand for power generation in July was 6pc lower.

Mr Mullins insisted that gas will play an “increasingly important role” in providing energy security as Ireland decarbonises.

The Kinsale Gas Fields have been decommissioned and the Corrib field off the west coast is now the only major source of indigenous gas production.

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Lack of funding for Irish startups worries investors

Senior venture capitalists have described as “worrying” the lack of money coming through for new Irish startups.

While the overall amount raised on both parts of the island reached €545m for the first six months of 2020 – the highest for four years -the figures were skewed by a handful of giant deals, leaving early-stage funding struggling badly.

”The number of companies raising funds declined by over 20pc and the number of companies raising investment for the first time fell by almost 60pc,” said Brian Caulfield, a venture partner in Draper Esprit and a long-time investor in Irish tech companies.

“There is also clear evidence that early-stage companies are finding it particularly difficult to raise funding, with only three companies founded since 2019 raising just €340,000.”

The wider figures collated by TechIreland include venture capital (VC), grants and other funding sources attracted by tech companies in Ireland and Northern Ireland.

The headline €545m figure is up 25pc on the first six months of 2019, according to the organisation’s study.

Nevertheless, “the headline conceals some very worrying trends,” said Mr Caulfield.

The chief executive of TechIreland, John O’Dea, said that the overall funding figures so far this year have been “distorted by three very large investments into Fenergo, LetsGetChecked and ALX Oncology, which between them add up to €237m, more than 40pc of the overall funding”.

There was a slight drop in funding into companies outside Dublin, with the exception of Cork, where eight firms raised a total of €88m in the first half of this year, up from €37m into 5 firms last year.

While Dublin saw an increase in funding raised, the number of investment rounds dropped by 27pc compared to last year, according to the TechIreland report.

Meanwhile, funding in Northern Ireland halved from €25m in the first half of 2019 to just €12m during the same period this year. ”Investment is still concentrated in Belfast with little of note in the rest of the province”, said Mary McKenna, an investor based in Northern Ireland.

Despite the concerns over very early-stage companies, some venture capitalists say that they are surprised at how much continues to be invested during the Covid-19 crisis.

“Every VC investor I know assumed capital markets would be shut or suppressed for 12-18 months following lockdowns, including me,” said Paul Murphy, a general partner at London-based Northzone. “We were all wrong. It’s a funding frenzy out there.”

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Eurozone government bonds sell off for fourth consecutive day

Euro zone government bond yields rose on Friday, after three consecutive days of selling-off, with the benchmark German 10-year Bund yield having briefly touched a six-week high in early London trading.

Borrowing costs in Europe have tracked US Treasuries this week, which have been driven to new highs by a deluge of debt issuance in the United States.

The sell-off of safe government debt is at odds with a broader risk-averse mood in global markets and is seen by analysts as a temporary correction resulting from uneven positioning.

“The market dynamics are becoming self-reinforcing with higher yields giving rise to higher yields,” wrote Commerzbank strategists Christoph Rieger and Cem Keltek.

“These phases have occurred before, for instance in March when yields spiked, which amplified the sell-off in equities,” they wrote.

“It is difficult to say, where or when the correction will end. We maintain a firm view, however, that this will be a temporary correction,and not a new trend,” they added.

At 07:30 GMT, the German 10-year Bund yield was at -0.417pc, up less than one basis point on the day.

The yield has risen 10 bps so far this week – its biggest weekly increase since the first week of June.

Peripheral yields rose even further, so spreads widened. Italy’s 10-year yield was up 2 bps at 1.101pc, while the equivalent Spanish and Portuguese yields were also up 2 bps .

Deutsche Bank’s global head of rates research, Francis Yared, said the move was not overdone and there was scope for the correction to continue.

But for the rise in rates to be sustained beyond a correction, there would need to be clear medical progress in curbing the Covid-19 pandemic, such as a vaccine, or a resolution in US government negotiations on financial support to mitigate the impact of the coronavirus pandemic.

Asian shares slid overnight after Chinese retail sales unexpectedly fell in July, suggesting domestic demand is still struggling after the Covid-19 outbreak.

The US government is still negotiating the terms of the next round of financial support to fight the pandemic.

US President Donald Trump said he was holding up the coronavirus aid in order to block the Democrats’ attempts to provide funding for the US Postal Service.

The White House negotiating team of Treasury Secretary Steve Mnuchin and chief of staff Mark Meadows has not met with House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer for six days.

The next flash point for global market sentiment is expected to be a virtual meeting between top US and China officials on Saturday, at which they will discuss their Phase 1 trade deal.

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