Taoiseach lays out devastating economic effects of Covid-19

Business Week: widespread job losses forecast with no sector of the economy to escape

Taoiseach Leo Varadkar has told the country that this St Patrick’s Day is a day no one will ever forget. Video: RTÉ

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Taoiseach Leo Varadkar won widespread acclaim for his televised address to the nation on St Patrick’s Day this week, but the address will also have left few in any doubt as to the scale of the crisis facing the country right now.

Not only are things likely to get far worse, with more massive disruption to public life coming down the tracks, but we also don’t know when there might be an end in sight as the coronavirus plays havoc with our society and economy.

“The truth is we don’t know yet,” Varadkar said. “This emergency is likely to go on well beyond March 29th. It could go on for months into the summer so we need to be sensible in the approach we take.”

We are “in the midst of a global and national emergency, a pandemic the likes of which none of us has seen before”, he said, adding that it will take years to recover economically.

“I am confident that our economy will bounce back but the damage will be significant and lasting. The bill will be enormous and it may take years to pay it.”

For one thing, the Department of Health will receive in excess of €2 billion from the exchequer to deal with the coronavirus crisis, part of a fiscal cost that could reach €10 billion, insiders said.

Both health and central government sources also expect that figure to rise, perhaps significantly, especially if the crisis continues through the summer, as indicated by Varadkar in his address.

The crisis has escalated at a frightening pace, and consumer confidence has already nosedived. KBC Bank’s latest index, which gauges consumer sentiment, recorded an eight-point drop to 77.3 in March, one of the largest on record.

“Irish consumer sentiment weakened significantly in early March as nervousness about the impact of the coronavirus on health as well as on economic and financial prospects increased materially,” the bank said.

Tourism Ireland, the cross-Border agency responsible for marketing the island to visitors from abroad, has asked the Government for at least €20 million in extra funding to pay for international advertising when the Covid-19 crisis ends.

That’s in addition to its annual marketing budget of about €45 million, but the truth is that the tourism industry, and the many small businesses around the country that depend on it for survival, will be one of the hardest hit by all this.

Tourism Ireland is now preparing plans to launch a massive advertising blitz later in the year, whenever the crisis eases and travel is allowed again, to try to salvage some of the 2020 season.

Airlines warn of bankruptcy

It isn’t just smaller businesses that are under threat, with many in the airline industry this week warning that they will simply not survive without government assistance.

The industry said it must shed jobs and obtain state support to survive the crisis, with carriers around the globe grounding the majority of their fleets.

In the past week, United Airlines in the US, IAG (parent of British Airways, Aer Lingus and Iberia), Air France-KLM, EasyJet, Finnair, Air New Zealand and Aeroflot all unveiled drastic measures to cut costs.

Ryanair raised the prospect that all of its aircraft could be grounded in the coming months as it joined the ranks of other airlines.

Over at IAG, Willie Walsh agreed to defer his retirement and continue as group chief executive. IAG said the crisis was having a “significant and increasingly negative impact” on demand for global air traffic on almost all routes.

Passenger services at Dublin and Cork airports are to be scaled back as a result of all this. The announcement came as unions representing Aer Lingus workers said staff were effectively seeing their wages halved.

Businesses cut staff and wages

Minister for Social Protection Regina Doherty said she accepts that more than 400,000 people could lose their jobs as a result of the pandemic.

For starters, Irish sportswear manufacturer O’Neills is to lay off about 900 staff and suspend operations until at least May, while Odeon and Cineworld are closing all of their cinemas in Ireland and the UK.

Elsewhere, Kingspan will halve executives’ pay while cutting all other workers’ wages by 40 per cent for two months. The insulation maker told shareholders it would withdraw its proposal to pay a 33.5 cent per share final dividend.

Elsewhere, earnings at the parent company of bookmaker Paddy Power could fall by up to £110 million (€122 million) should the Covid-19 pandemic continue to mean restrictions on sporting events until August, the company said.

Not all bad

The crisis isn’t all bad news for businesses, with SuperValu and Tesco Ireland reporting demand for online shopping services rocketing since the escalation of social distancing practices.

SuperValu described it as “a huge spike” while Tesco said there had been “a significant increase” in orders on its home delivery services, adding that its drivers and store employees were “working around the clock”.

Grocery retailer Aldi is to launch a recruitment drive in the coming days to ensure levels of service will be maintained throughout the “challenging time ahead”.

The supermarket group said it was “actively preparing” to supplement its 4,000-strong workforce and would liaise with industry representative bodies in sectors where there have been mass job losses including in hotels and restaurants.

The coronavirus crisis has also sparked a rush for gold and safety deposit boxes, according to Merrion Vaults, which rents out safety deposit boxes in the Republic and UK, and buys gold for clients. It is experiencing “unprecedented” demand.

Meanwhile, ventilator-maker Medtronic, with its headquarters in Dublin, said it has increased production of ventilators by more than 40 per cent and is on track to more than double its capacity and headcount in Galway.

Banks pledge to do their bit

What with people put to the pins of their collars right now, many have been quick to call on the banks to show some flexibility with lenders – particularly given the bailout they were afforded by taxpayers just over a decade ago.

So, the heads of the State’s five banks have promised Minister for Finance Paschal Donohoe to defer legal proceedings and repossessions against borrowers in default and extend payment holidays to homeowners and businesses.

Both industry-wide concessions will last for up to three months, and will be subject to ongoing reviews as the situation develops.

AIB, the Republic’s largest mortgage lender, has moved to postpone indefinitely its first sale of a deeply distressed owner-occupier loan book, which was set for final bids in middle of next month, according to sources.

It is estimated that the portfolio, dubbed Project Oak, included mortgages that had an original value of €1.3 billion and was set to achieve a discounted rate of between €700 million and €800 million.

AIB is also to provide full pay to staff whose partners are healthcare workers during the Covid-19 crisis, once they have dependents.

The move means affected employees of the bank will be able to step away from their day jobs to mind children or others who need care, allowing their partners to attend work during what is a critical period for the health service.

AIB and Bank of Ireland, which have slumped in recent weeks, are now pricing in an unlikely event of racking up more than €6 billion of bad loan losses in the coming years, analysts and traders said.

AIB has seen three-quarters of its market value wiped away since the start of this year, while Bank of Ireland’s shares have fallen by about two-thirds.

On that note, the Central Bank bowed to pressure to allow banks to tap rainy-day capital, which Donohoe estimates will enable the industry to provide an additional €13 billion of lending to the severely distressed economy.

Finally, tenants experiencing financial stress resulting from coronavirus may have their rents deferred and will not be served notice to leave, at least during the acute phase of the crisis, a lobby group for the sector said.

Irish Institutional Property, which represents landlords such as the State’s largest, Ires Reit, proposed several measures to support residential tenants.

The landlords’ group, which also includes the likes of Kennedy Wilson and Hines, said it would develop protocols to support tenants experiencing short-term financial stress.

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