Precise economic forecasting has gone out the window in the current crisis. The world economy is off script.
What happens next economically all depends on the path of the virus, the success of efforts to control it and, crucially, when and how restrictions are lifted.
In Ireland, large parts of the economy are shut down. More than half a million people are relying of State unemployment benefits and income supports.
The key to the long term economic impact of this crisis is when firms can reopen and whether they can get back to something like normal operation when the do?
The looming concern is ongoing restrictions will irrevocably damage trading for many firms and hinder the broader recovery.
Already unemployment in Ireland has surged and there are signs of a growing cash crunch across the business sector – bills not being paid which can quickly have a ripple effect through the economy.
Sources believe a jump in liquidations are now inevitable.The concern is that as the restrictions extend the Irish economy will pass a series of tipping points – the thresholds where businesses in different areas can hold on, or avoid cutbacks.
As these tipping points are passed the bounceback - if that what it will be - may be slower and more gradual which could extend the economic crisis for many people.
Ireland’s public health and economic goals are linked – the economy cannot recover unless the virus is controlled. And there is no point easing the restrictions too quickly – there is no advantage to letting businesses reopen and then having to close them again.
Here, as best we can, we examine what this might mean for the Irish economy.
1. Growth: We won't get the official Government estimate until updated data are sent to Brussels late in April, as part of the normal update.
On the basis of emerging international figures – and a range of local forecasts – we might expect this will look at a fall in GDP this year of somewhere in the 8 per cent to 10 per cent region for 2020 and probably towards the top of this range.
The ESRI outlined one scenario, with restrictions lifting over the summer, which led to a 7.5 per cent GDP fall.
As fears grow that at least some restrictions will remain in place for longer, it would be a surprise if the official forecasts were not a bit higher. The latest Central Bank bulletin, due on Friday, will be closely watched.
Irish GDP is difficult to forecast at the best of times, due to the impact of the multinationals and is an imperfect indicator of the health of the economy.
An OECD estimate this week said Irish output would fall by 15 per cent in the second quarter, compared to the same period last year, with our large foreign sector meaning the initial hit here would be less than the 20-25 per cent second quarter decline felt in many other economies.
However, this OECD estimate was just looking at the initial – or first-round – impact due to the closure of directly affected businesses in sectors like retail and tourism.
So the initial hit could be even higher as the ripples spread. Things are likely to stabilise a bit in latter quarters, but for the full-year, big GDP declines are likely across international economies,
Here, credit is drying up in the domestic sector – a "mini ice-age", as Ian Talbot of Chambers Ireland, the umbrella body for the Chambers of Commerce, put it.
This will threaten many businesses. Whatever the GDP figures show at the end of the year, the domestic sector is very exposed.
The hope is a significant bounce when everything starts to reopen saves most of these firms. But it looks likely that the restrictions will be lifted gradually and some changes to behaviour will continue resulting in a more gradual recovery.
2. Borrowing: The exchequer returns for March, out on Thursday, show a big drop in taxes of 20 per cent, compared to the same month last year.. A few more months of big drops lie ahead as taxes from the domestic economy tank.
As economist Seamus Coffey has pointed out, one irony is that the part of tax revenue we had worried about – corporation tax – may well be the one supporting the exchequer this year, as the big firms in should, in theory, perform relatively better.
However, a big decline in the US economy and a global recession will also threaten these firms, though the pharma sector – one of the big tax payers in Ireland – should remain strong.
On the spending side, the Government has already committed €6.7 billion to income support and unemployment measures for 12 weeks, and is adding extra spending on health which probably brings the running total to €9 billion or so.
The likelihood of some extension of income supports will see this figure rise further, possibly significantly further.
What will the final borrowing tally be by the end of the year? Given extra spending – including the likelihood of some extension to the employment supports – and a sharp fall in tax revenues, a deficit in the region of €25 billion-€30 billion of GDP is possible.
This would be not far off 10 per cent of likely GDP. It is some turnaround from expectations of a small expected surplus for this year before the crisis broke. It should be manageable, if the big investors who lend us money are confident that come 2021 the economy will be back on a firm upward track – and if there are no wider global or EU impacts in the meantime.
These are two significant “ifs”, with threats in particular to the US economy and also some emerging tensions in the euro zone.
But for the moment interest rates are low and the ECB is in the market for government debt.
3. Jobs: The clearest economic signal we have seen is the massive numbers of people no longer working – some 283,000 had received Covid-19 unemployment payments at the start of the week and adding in existing unemployment and people relying on new income supports, the total is now over 513,000.
By comparison, unemployment in February was 120,000 and there were just over 180,00 on the live register , which also includes some people on part-time work.
Lay-offs will continue – there will be another large group from the construction sector this week. And some 30,000 companies have applied for the income support scheme.Government estimates allow for the total relying on the range of payments available to reach a staggering 800,000.
So Ireland has seen a hit to the jobs market which took three years to arrive during the financial crisis happening in just weeks.
It is different this time, as we can legitimately hope that many will be re-employed when business starts to reopen.
But unemployment will still end the year a lot higher than it started it.
An analysis by the Parliamentary Budget Office (PBO) estimates that just shy of 500,000 people work in the sectors now closed – non-essential retail and construction, accommodation, recreation– gyms and swimming pools – pubs and some parts of manufacturing.
In lower paid areas like leisure, retail and hospitality, the Government supports will replace a significant part of income, while in sectors like construction it might only be around half for someone on the Covid-19 payment.
The sectors hardest hit are high employers of younger people.And of course many other sectors will be affected as demand falls off across the economy.
4. Cyclical versus structural: A useful way to think of the economic impact is to look at how much of this might be what economists usually term cyclical – the ups and downs of the economic cycle and what might be called structural, or more permanent.
Now of course this is no normal economic cycle – we have chosen to impose it on ourselves for good reasons. But as the restrictions are lifted, there will be a recovery,and quite a significant one, even if – as mentioned above – it is hard to call how rapid this will be.
For example, house-building might restart and commercial construction, moving a significant number back into work, and much of the retail sector will reopen.
But what of the pub sector? Or international tourism, given the likely reluctance to travel, at least for a period?
Nonetheless these sectors will reopen in time, too.
And here we get into the structural question. Some companies will not make it and many who do will look different, possibly employing fewer people or paying them less.
A big cash crunch will take its toll on domestic businesses – government supports will help, but can’t cover all the loss. Again, the length of time the restrictions continue here is vital – companies can get by for a time, but if it moves well into the second half of this year it gets very awkward. There is where we get to the tipping point issue for companies and the risk of the costs of all this spreading and deepening,
The second cause of structural change would come from any longer-term changes to the economy and the way people operate and spend money. In particular demand for areas where people gather together – pubs, events, plane travelling and so on – may be slow to return, at least until a vaccine is found. And beyond that who knows how our habits will change?
The bottom line is that we are engaged in an extraordinary and – by necessity – risky economic experiment.
We know the initial hit is huge . What we don’t know is the long term impact. That will depend on how long the restrictions last.