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Hospitality facing same pain as property sector in 2008 crash

Dan O'Brien

Economy Watch By Dan O'Brien, chief economist of the Institute of International and European Affairs


Commercial Court in Belfast is normally packed with revellers at night

Commercial Court in Belfast is normally packed with revellers at night

Kevin Scott / Belfast Telegraph

Commercial Court in Belfast is normally packed with revellers at night

Is the hospitality industry set to become the equivalent of the construction industry during the property crash? After Tuesday's announcement that another step towards reopening in the Republic is to be paused - followed by a delay for Northern Ireland's pubs to reopen - that question is more pertinent than ever.

We will return to it presently.

The scale of the shock to the economy caused by the virus and measures to ­suppress it is, well, shocking.

The OECD, a think tank in Paris, has found that the impact of the pandemic on employment among its mostly rich ­member countries has been 10 times greater than that of the recession in 2008.

Closer to home, and even after almost half-a-year since Covid struck, seeing the centre of Dublin so empty at the height of summer is scarcely believable.

Pubs which have for generations been meeting places remain boarded up.

Following Tuesday's decision to delay moving to the next phase of reopening, it is increasingly likely that many pubs across the country will never welcome patrons back. Many other kinds of ­businesses are facing the same fate.

In these grim times, let's start with glimmers of light.

The Republic's statisticians have published their estimates of the nation's numbers of unemployed. They revealed that joblessness fell sharply in July, as previous phases of reopening saw people get back to work.

But with almost 17% of the Republic's workforce still out of work, the jobs picture remains frightening - historically, the Republic's unemployment was only as high as now in the 1980s, when years of recession had crushed job creation and triggered mass emigration.

If the scale of joblessness remains appallingly high, at least it is moving in the right direction.

From a rate of unemployment of almost 30% in April, when lockdown was most severe, it is now in the teens.

There is reason to hope that it will continue falling this month and next, particularly if the schools reopen on schedule.

But it is necessary to stress that these figures are estimates because even professional statisticians are having trouble counting the numbers out of work given the dramatic impact Covid has had on the labour market.

In Ireland and elsewhere it is difficult to get a handle on how such an unprecedented and sudden shock is affecting jobs right now.

Returning to the future of hospitality sector, how bad could it get?

At the height of the property bubble almost a quarter-of-a-million people worked in the construction sector. Within a couple of years two out of every three jobs in the industry had gone.

The hospitality sector is also large; around 200,000 people worked in it before the pandemic.

Job losses of the magnitude experienced by the construction sector a decade ago would have major implications for tens of thousands of people and their families directly affected, as well as for the rest of the economy.

If demand for hotel rooms, meals out, cultural events and other hospitality services remains far below normal levels, then many businesses in the sector will continue making losses.

That will lead, sooner or later, to business closures and jobs permanently lost.

The scale of it should not be as big as the construction collapse a decade ago, but it may not be far off in a worst-case scenario.

What about other sectors?

Among the most vulnerable is retailing. It is the largest single employer in the economy, with well over 200,000 people stacking shelves, manning check-outs and generally ­keeping shops open.

The wider recession in the economy will hit the sector hard. And the increased costs of operating in the Covid environment will only add to the problems of many retailers.

All of this augurs badly for the sector, which even before Covid had not returned to pre-property-crash levels of employment.

Again, and as with so much else about Covid, it is hard to be definitive about how the nation's town centres and main streets are doing.

We know that the amounts purchased in shops up and down the country rebounded to pre-Covid levels in June. What is less clear is whether that was a return to some sort of retail normality, or whether spending was driven by pent-up demand from the previous months when so much was shut down.

If it is the latter, then activity will have already fallen back.

The amount that landed into the Irish ­Government's coffers in Vat last month point to the June recovery in consumer spending being at least as much to do with purchases that were postponed ­during the lockdown as a return to ­normality.

The July Vat revenues, which mostly reflects monies collected by retailers in both June and July (businesses file returns every second month) were down a massive 30% on the same period last year.

That suggests a falling back of activity in July, something corroborated by debit and credit card figures from the Central Bank.

The wider tax revenue figures published last week brought some reassurance that the economy is not plunging into recession more rapidly than the Irish Government's number crunchers had anticipated once the new reality became clear in April.

Total tax revenue in the first seven months of the year is down on last year, but not by nearly as much as might have been expected.

That is thanks to businesses paying more tax on their profits and people paying only somewhat less on their personal incomes.

With the Republic's October's Budget just a little over two months away, ministers and officials in the Department of Finance won't have much time to recharge their batteries ­during what remains of the summer.

Belfast Telegraph