The Covid-19 crisis and continued uncertainty over Brexit mean that companies’ profitability will be under severe pressure, irrespective of falling labour costs, for the next year, according to AIB Ireland. 

The latest Business Activity Report from the bank says that private sector firms are now substantially less optimistic about the outlook for the next 12 months than they were before the Covid-19 pandemic hit.

The most commonly predicted recovery timescale for businesses from Covid-19 is seven to 12 months (21% of businesses). Just 13% believed they could recover in less than three months, with 19% estimating up to six months and a significant 6% expecting recovery to take up to two years.

The AIB report uses percentage net balances varying between -100 and 100 to indicate the degree of optimism or pessimism. The net balance of firms expecting growth over the next 12 months has fallen to 28% in June from 37% in pre-Covid February.

The jobs outlook is no better, with the net balance for employment falling sharply to 7% in June from 23% in February, the lowest figure since October 2010, the fourth lowest on record and — at 16 points — the largest decline ever recorded.

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Head of business banking Hilary Gormley said: “The results are not surprising, given the effect that Covid-19 has had across Ireland and the Brexit uncertainty that lies ahead. The impact of Covid has been extremely wide-reaching and the severity of that impact has varied greatly across different sectors. 

“The same can be said for the recovery, as the survey highlights that the speed of recovery for businesses will vary, depending on their activities, markets and customers.

“Respondents also highlighted concerns about profitability over the next 12 months, but the key focus for businesses in the short term is liquidity, and ensuring they are adequately resourced and are focused on managing their working capital as best they can."