STARK WARNINGS ABOUT the impact of Covid-19 on the public finances were given to Cabinet today by Finance Minister Paschal Donohoe.
Ministers were today warned about the full extent the pandemic will have on Ireland’s economy this year.
Speaking to reporters after today’s meeting, Donohoe said unemployment is predicted to hit 22%, while a 10.5% fall in GDP is also on the cards.
He said: “The Irish economic landscape, in common with elsewhere, has been turned on its head in recent weeks. The necessary restrictions to limit the transmission of the Covid-19 virus have resulted in a severe recession and unprecedented levels of unemployment.”
The government’s Stability Programme Update 2020 contains the grim forecasts, setting out a macroeconomic and fiscal scenario for the period 2020-2021, incorporating the impact of the pandemic.
Ireland’s gross domestic product (GDP) is to fall by 10.5%, while the labour market bears the brunt of the economic shock going from full employment to peak of 22% this quarter.
General government deficit will reach €23 billion (7.4% of GDP) according to the projection for this year.
Domestic demand is projected to fall by 15%.
Despite this, the government document said the “fiscal starting position in Ireland is reasonably good” and means we’re in a position to “absorb a short-term increase in borrowing”.
The recovery of the Irish economy in the second half of this year is dependent on the successful containment of the virus.
It said: “Assuming that containment measures are effective in reducing the infection rate, economic activity would bottom-out in the second quarter, with a gradual recovery – domestically and internationally – beginning later this year and gaining momentum into next year.
Having said that, it is not difficult to imagine a worse outcome.
Under its positive projections, employment will begin to grow in 2021 with the number of people out of work falling 10%.
The Department of Finance’s chief economist John McCarthy said:
The result will be the deepest recession since the Great Depression of the 1930s. But it’s not just the the depth of the recession, it is also the breadth of the recession.
McCarthy told the media today that he asked one of his colleagues to look at when something similar in relation to employment might have occurred in the past.
“We looked and saw a figure in 1983 of about 18% so this would be very much the largest on record,” he said.
However, he said this downturn is a very different beast to the financial crash 12 years ago.
“If you consider the global financial crisis of about a decade ago. That was very much an advanced economy phenomenon… the current recession is very much a global phenomenon,” he said stating that it is a public health crisis that is eating into the real economy.
He reiterated the minister’s point that the projections outlined today are just a “scenario” rather than a forecast of what might happen, stating that there are a range of uncertainties facing the country.
The minister said the “most important thing we can do economically, is get people back to work in our economy. And as soon as the public health guide facilitates that, that will be a matter of huge focus for me”.
He added: “There is no doubt that, along with the rest of the world, Ireland is on a difficult road. However, we face into this journey from a position of strength. We can and we will rebuild our economy, continue to provide for society, get our people back to work and keep them safe while doing so.”
He added that running a deficit in a recession is appropriate because “this is how we support the economy in difficult times”.
Donohoe said an economic recovery plan will be published to lay out the necessary measures to restore full employment and outlined the steps needed to get the country back on track.
With reporting from Christina Finn
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