Ireland faces 'deep downturn' this year and may not rebound until 2024 if there is a second wave
Bank outlines worst-case economic scenario from pandemic in latest quarterly analysis
Minister for Finance Paschal Donohoe (R) and Minister for Public Expenditure Michael McGrath are seen ahead of a press conference outside Government Buildings in Dublin on Thursday. Photograph: Julien Behal/PA Wire
This warning is based on the worst-case scenario laid out in the Central Bank’s latest quarterly analysis of the economy. This scenario assumes the strict lockdown period has a more damaging impact on economic activity and that there is a resurgence of coronavirus at some point over the next year, with the economy contracting by nearly 14 per cent for 2020 and the Government’s budget deficit ballooning to €30 billion.
In a more benign scenario, the Central Bank predicts that the economy could rebound by 2022, provided there is a gradual reopening of the economy this year and no resurgence of coronavirus.
However, the level of activity will be significantly below where it would have been had the economy grown in line with expectations before the pandemic, the Central Bank said.
“While there is considerable uncertainty about the outlook, the scenarios we present . . . point to a deep downturn in 2020, with a gradual recovery in coming years,” the bank’s director of economics and statistics, Mark Cassidy, said. “The path ahead for the economy will depend on the path of the virus, which makes the strength of the recovery and the future impact on sectors uncertain.”
Exchequer figures for the first six months of this year highlighted the cost to the State of battling the pandemic. The budget deficit swelled to €5.3 billion in June, as spending on health and income supports related to the Covid-19 pandemic soared.This compared with a surplus of €260 million for the same period last year.
Government spending was 20 per cent above its original target at nearly €32 billion in June. Social protection spending was €4.1 billion above profile, reflecting the Government’s income support schemes, while health spending was €1.2 billion ahead of target.
Wage subsidy scheme
One of the first issues the new Government will have to examine is the future of the wage subsidy scheme. It is expected the future structure of the scheme will form part of the July stimulus plan expected towards the end of the month.
Taoiseach Micheál Martin said the scheme may be fine-tuned or targeted at specific sectors of the economy which most need it, with analysis needed before changes are made.
Minister for Finance Paschal Donohoe said: “We’ll be looking at the viability of different sectors within our economy. And we will be seeing if there are sector-specific issues that do need to be addressed by the future of the wage subsidy scheme. The abrupt conclusion and termination of the wage subsidy scheme could have a significant effect on job retention in our country. And that is something that the new Government wants to avoid.”
Michael McGrath, the Minister for Public Expenditure, said: “There are of course significant decisions to be made in relation to the future of the wage subsidy scheme and pandemic unemployment payments. We [also] have the existing commercial rates waiver, the business restart grant, we have the credit guarantee scheme legislation, which needs to be brought before the Oireachtas and enacted.”