Dire economic forecasts predict €23 billion deficit

Neasa Hourigan states the predictions are ‘not a good reason to stay out’ of a coalition

Minister for Finance Paschal Donohoe said the coronavirus crisis had resulted in a ‘severe recession’. Photograph: Leon Farrell/Photocall Ireland

Minister for Finance Paschal Donohoe said the coronavirus crisis had resulted in a ‘severe recession’. Photograph: Leon Farrell/Photocall Ireland

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Fianna Fáil and the Green Party have said that the dire economic forecasts published by the Government on Tuesday in the Stability Programme Update (SPU) underline the need to form a new government in the coming weeks.

Speaking after the Government had published the worst economic projections since the financial crisis of 2008-11, the Fianna Fáil finance spokesman Michael McGrath said the document “sets out the scale of the economic and fiscal challenges” that would face the next government.

“The reality is that a new government needs to be put in place to start taking the decisions that will put us on the road to recovery,” he said.

While senior figures in Fianna Fáil and Fine Gael were privately worried that the forecasts for a massive budget deficit and ballooning unemployment would scare smaller parties away from participation in government, the Greens finance spokeswoman Neasa Hourigan said the document was “not a good reason to stay out of government”.

“We can do better than we did in 2008. We can protect the vulnerable . . . and not go for austerity again,” Ms Hourigan said.

She said the Green Party was “looking to be involved in these decisions”.

Efforts by Fine Gael and Fianna Fáil to reach out to independent TDs to support a new administration continued on Tuesday, while it is understood that the Green Party will publish a response to the framework for a new government agreed by the two big parties last week.

Sinn Féin said austerity must be avoided in any response to the economic crisis.

“Ireland requires a radical recovery plan to create jobs, build homes, deliver universal healthcare and protect households from private debt,” finance spokesman Pearse Doherty said in a statement.

He called for “liquidity supports” for families as well as businesses.

The efforts to put together a new government will be overshadowed by the worst economic outlook since the early days of the financial crisis in 2008-09. The Government said it expected the economy to shrink by more than 10 per cent this year, but if Covid-19 restrictions remained in place later in the summer, the contraction could be as high as 14-15 per cent in a worst case scenario.

Economic activity is not expected to reach its pre-crisis level until 2022.

Soaring unemployment

Minister for Finance Paschal Donohoe said the coronavirus crisis had resulted in a “severe recession” with unemployment soaring to a record 22 per cent – an economic shock without precedent in modern times.

Publishing the Government’s latest SPU, which sets out its economic and fiscal projections for the year, Mr Donohoe said the economic landscape, in common with elsewhere, had been “turned on its head”.

“In the space of 12 weeks our jobs market has gone from almost full employment to a scale of unprecedented unemployment that has risen with a speed and scale that is unprecedented,” he said.

Mr Donohoe said his department was predicting unemployment to hit 22 per cent in the second quarter, “the highest level on record”, before easing back thereafter.

More than one million people are now either fully or partially dependent on the State for income support, according to figures from the Department of Employment Affairs and Social Protection.

The overall fiscal cost of the virus in exchequer terms would also be significant with the Government now expecting to run a deficit of 7.5 per cent or €23 billion this year, instead of a surplus of €2.2 billion, which had been forecast at the start of the year. This corresponds to a €25 billion reversal in the public finances.

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