Republic at risk if Covid scars hit global trade, Makhlouf says

Central Bank governor highlights risks to global ‘interconnectedness’

Gabriel Makhlouf said that although some of the multinationals resident in the Republic have proven more resilient than others to the Covid-19 shock, they are not immune to global economic developments. Photograph: Nick Bradshaw

Gabriel Makhlouf said that although some of the multinationals resident in the Republic have proven more resilient than others to the Covid-19 shock, they are not immune to global economic developments. Photograph: Nick Bradshaw

 

Central Bank of Ireland governor Gabriel Makhlouf said the State’s open economy faces particular risks if global trade is dented as countries retrench in the wake of the coronavirus crisis.

In his latest weekly Covid-19 blog posted on the bank’s website on Wednesday, Mr Makhlouf cited research which showed the world went through a period of “de-globalisation” between the two world wars, fuelled partially by the after-effects of the 1918 Spanish flu pandemic. This resulted in an estimated 40 million deaths or 2.1 per cent of the world’s population at the time.

“The longer the virus stays with us, the greater the scarring effects of the crisis and the longer the economy will take to return to its potential,” the governor said. “A potentially significant scarring effect for Ireland and the world is the impact of Covid-19 on global interconnectedness.”

Mr Makhlouf said that although some of the multinationals resident in the Republic have proven more resilient than others to the Covid-19 shock, they are not immune to global economic developments. “And any structural changes from the shock – for example, to reduce the complexity of global supply chains – could impact the Irish economy,” he said.

Pharmaceutical groups

Foreign direct investment in Ireland is dominated by pharmaceutical groups and technology giants, sectors that have been largely cushioned – and in some areas benefited –from the ongoing crisis.

Still, US president Donald Trump made a specific reference to Ireland earlier this month when he repeated a pledge to bring US pharmaceutical manufacturing back to America.

“It’s not only China, you take a look at Ireland. They make our drugs. Everybody makes our drugs except us,” Mr Trump said in an interview with Fox News on May 3rd.