Coronavirus: Ireland faces possibility of recession amid uncertainty

Outbreak and ‘lockdown’ beyond July may create ‘zero or negative growth’, ESRI warns

 Depleted stocks in Aldi in Blackrock: Lidl said the Covid-19-inspired panic buying on Thursday resulted in the group’s busiest day since it entered the Irish market two decades ago. Photograph: Nick Bradshaw

Depleted stocks in Aldi in Blackrock: Lidl said the Covid-19-inspired panic buying on Thursday resulted in the group’s busiest day since it entered the Irish market two decades ago. Photograph: Nick Bradshaw

 

A prolonged outbreak of coronavirus in the Republic could push the economy into recession, the Economic and Social Research Institute (ESRI) has warned.

The think tank said the economy could shrink for the first time since the financial crisis if the country remained on lockdown for an extended period.

The institute’s Kieran McQuinn said that if the outbreak can be contained to a single quarter and “if by June/July things are returning to normal then the Irish economy should still register positive growth this year”.

However, if the issue and particularly the “lockdown” goes beyond that period “we’re looking at zero or even negative growth for the year”, he said.

Until now, both the ESRI and the Government had been expecting the economy to grow by up to 4 per cent this year, but both have hinted that they will be reducing their forecasts in coming weeks.

Global downturn

Prof McQuinn warned that, as a small, open economy, heavily reliant on international trade, the State could be hit hard by a global downturn, which he said was “very likely to occur”.

With businesses struggling to plan for what could be an extended period of slow activity, Irish lenders are closely watching the impact of Covid-19 on their bad debts. This comes amid uncertainty over how European Union regulators would view higher levels of non-performing loans, a phenomenon that could be expected to follow recession.

Banks have said they are already receiving inquiries about accessing working capital, with some customers seeking moratoriums on loans.

Panic buying

And as consumers continued to panic buy in reaction to coronavirus measures, the Government said it had been assured by grocery multiples that supplies would be maintained in coming weeks. Supermarket group Lidl said the Covid-19-inspired panic buying witnessed on Thursday resulted in the group’s busiest day since it entered the Irish market two decades ago.

Offering some relief to businesses on Friday, Revenue said it would suspend the application of interest on late VAT payments for the January-February return, and on late payments of employers’ PAYE liabilities for February and March. It also said it was suspending its debt-enforcement activities.

Meanwhile, global financial markets clawed back a small slice of their losses on Friday after a brutal week of selling – the worst since the Black Monday crash of 1987 – on the back of a spike in coronavirus cases outside China. US stocks surged by 9 per cent on Friday evening after President Donald Trump announced an escalated response to the virus.