Cliff Taylor: Sudden, sharp decline in activity will have severe impact

The economy faces a significant hit in the short-term as the new restrictions announced by the Government come into force. Key parts of the economy – tourism, food services and events – are already experiencing a sharp fall in demand and this will now accelerate.

The fall in global financial markets also shows concerns about a global recession, which will hit the exporting sector. Meanwhile, the closure of schools will disrupt companies and public services,with many parents having to stay at home to mind children.

The rapid spread of the coronavirus and the dramatic measures to combat it are causing major economic uncertainty and are leading to calls from businesses for more assistance, beyond that already announced by the Government.

The speed and extent of this decline will cause severe difficulties for many businesses

Sectors based on tourism are already experiencing a massive fall in bookings and the cancellation of many events and the likelihood that people will stay at home more will add to the pressure on many restaurants and hotels.

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Widespread temporary closures or cuts in capacity and some lay-offs are now likely.

Ibec, the business lobby group warned on Thursday that “there will be severe disruption to enterprise and the State needs to be flexible in supporting the cash flow needs of businesses to avoid large scale job losses.”

Ironically, the first economic news after the announcement was a wave of panic buying of food and the grocery items. However, while spending on food and essentials may not be seriously affected, non-food spending, particularly on leisure items involving social contact – like meals out, travel, going to the pub or visits to the cinema – are all likely fall sharply.

And Chambers Ireland has warned that longer-term uncertainty faces the tourism sector with bookings collapsing. Goodbody Stockbrokers economist Dermot O'Leary pointed out that 10 per cent of jobs relied on the tourism sector.

Special loans

The speed and extent of this decline will cause severe difficulties for many businesses and while the Government has started to put in place special loan packages and other support, the impact on thousands of smaller businesses and their employees will be difficult to deal with.

A key issue if whether the restrictions can indeed be lifted on March 29th or are likely to persist into Easter and beyond. The Government is coming under pressure to extend it supports and allow companies to delay tax payments. Banks have promised to deal sympathetically with those affected.

In a commentary yesterday, Ulster Bank Markets said that “it seems probable that further measures will be needed by way of additional supports for some particularly vulnerable sectors such as tourism and hospitality which had been showing signs of weakness even prior to adverse impacts from the virus.”

A slowdown in world growth – and some problems in international supply chains – will also hit exporting companies. Economic forecasters are struggling to keep up with the pace of the crisis, but the fall in financial markets, particularly on Thursday, indicates that investors believe an international recession is imminent.

This will be another factor hitting growth here in the months ahead. A significant hit to economic growth is now inevitable – what is still unclear is for how long this impact will last.