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Morning Memo: The morning after a bonanza Budget and spotlight on the IMF's latest global forecast

Few big ideas but the government tried to treat the symptoms in Budget 2021.

This is an extract from today’s edition of Morning Memo, TheJournal.ie’s daily business newsletter, which puts the biggest business and economics stories of the day into context for readers. We also include a reading list of some of the more interesting business and economics-tinged stories from around the internet. Find out more and sign up here or at the bottom of the page. 

SOMEONE — I CAN’T remember who exactly — said recently that Irish politicians are addicted to crisis.

Why wouldn’t they be?

Whether it’s a bank bailout or Brexit, crises are usually a handy distraction from having to think about or address more fundamental issues.

They also provide a wonderful opportunity to come to the rescue. 

There’s no arguing with the figures in yesterday’s Budget announcement.

A sobering €20.5 billion deficit is pencilled in for next year to account for the massive uptick in spending necessitated by the pandemic and the attendant economic crisis.

But for the Largest Budget in the History of the State™, there’s not much — arguably, except for allocation for the national retrofitting programme — in the way of big ideas that grapple with fundamental issues of social or economic inequity, such as those highlighted by the virus, for example, childcare or low-pay.

In fact, as one analyst said on RTÉ yesterday (again, I can’t remember who — it was a very long day), it’s really a Budget that militates against big ideas.

Instead, the government tried to treat a lot of the symptoms of the crisis, albeit with some very big numbers.

And so business owners and lobby groups will be absolutely delighted with Finance Minister Paschal Donohoe’s largesse after weeks of campaigning.

The creation of a new €5,000 per week support scheme for firms affected by Covid restrictions is a particular highlight for them and for the hospitality sector — including the famously demure publicans’ lobby — alongside the reduction in the VAT rate.

One of the most important factors in the creation of the Budget was the adoption of a temporary State Aid framework by the European Commission in response to the crisis in March. That framework — further extended recently — took the brakes off EU rules around the amount of support that member states can dish out to businesses.

This helped to provide a major boost to the typically spend-thrift finance minister’s ambitions.

But it’s worth remembering that the shock to the Irish domestic economy and labour market this year is really unlike anything that we or even our parents have seen before in terms of scale and speed.

It’s a crisis that demanded the Largest Budget in the History of the State™ and in this context, it’s fair to say that this is a remedial Budget and not a transformative one.

If you’re feeling slightly underwhelmed this morning, you’re probably not alone.

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Spotlight on the IMF’s latest forecast

Our focus was fixed firmly on the local yesterday but the current economic crisis remains a global one. 

One of the great wake-up calls in the early stages of the pandemic came from the International Monetary Fund (IMF) with the release of its World Economic Outlook in early April.

You might recall that the predictions at the time were dire with what the IMF called ‘The Great Lockdown‘ (that name never really caught on, did it?) representing the worst economic crisis since the Great Depression.

At the time, the pandemic was expected to shave at least 3% off global and something like 1.2% off euro area growth this year.
 
Yesterday, the IMF published its latest economic outlook, which suggests that the situation has worsened since then.

Although it represents an upward revision from the last forecast, published in June, the fund now expects the global economy to shrink by 4.4% this year and the euro zone by 8.3%.

We may have since become inured to the doom and gloom, but it’s difficult to overstate how drastic these forecasts are in a historical context.

It remains “the worst crisis since the Great Depression,” writes IMF chief economist in Gita Gopinath in a blog yesterday, “and it will take significant innovation on the policy front, at both the national and international levels to recover from this calamity.”

This is an extract from today’s edition of Morning Memo, TheJournal.ie’s daily business newsletter, which puts the biggest business stories of the day into context for readers. Find out more and sign up here or enter your email address below.

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