The Irish economy will fall into recession this year, shrinking 7.1% following the coronavirus crisis, the Institute for Economic and Social Research (ESRI) estimated.
In its latest quarterly assessment, the think tank said the Covid-19 pandemic was the biggest threat to the Irish economy since the financial crisis.
Assuming the closure measures remain in place for 12 weeks and the economy recovers thereafter, the institute said it expected the economy to contract by 7.1 % in 2020. This follows growth of 5.5% last year.
“Consumption, investment and net trade would all drop sharply; households would cut spending, businesses would cancel or postpone investment and the external demand for Irish goods and services would drop, “he said.
ESRI warns the labor market is likely to suffer the biggest shock in a single quarter of living memory – the unemployment rate reaching 18% in the first three months of the year compared to a position at the end of 2019 where the economy had an unemployment rate of 4.8% – almost full employment. The institute estimates that up to 350,000 people will lose their jobs, equivalent to one-sixth of the workforce.
ESRI said its latest comment provides a scenario analysis that attempts to assess the economic impact of the current restrictions and closings.
Instead of running a budget surplus as expected, the government should now face a budget deficit of 4.3% due to the significant drop in revenue that the Treasury will have to face due to the economic contraction.
The deterioration in public finances also reflects the significant increase in spending that the government has been forced to implement to support workers who have lost their jobs, help businesses facing declining incomes, and provide the necessary additional health care spending. to fight the virus, said ESRI. According to initial estimates, this package could reach 15 billion euros.
The think tank also warned that this scenario could turn out to be “too mild” if the current situation worsens. “As events unfold quickly, we will reexamine these scenarios more frequently than our traditional publishing model,” he said.
ESRI expected growth of around 3% this year. The group said its latest comment provided a scenario analysis that attempts to assess the economic impact of the current restrictions and closings.
“The speed of economic deterioration is unprecedented in modern times and in many ways exceeds that of the financial crisis,” he said.
“The response of national and international authorities to the spread of the virus, although absolutely necessary from a general health standpoint, will result in the loss of millions of jobs worldwide in the weeks and months to come and an a sharp contraction in global economic activity, “said ESRI.
“Limitations on international travel and the effective closure of entire countries will have far-reaching implications for cross-border trade and commerce,” he added.
The government has forecast economic growth of 3-4% this year, but Finance Minister Paschal Donohoe has said it will be revised down in the next Stability Program (SPU) update.