The Irish Times view on the economic outlook: Counting on a swift recovery

New reports from economic think tanks are valuable in trying to see through the fog of what lies ahead

A man ascends a high crane on a building site on Kylemore Road, Dublin, as construction recommenced across the country last week. Photograph: Crispin Rodwell

A man ascends a high crane on a building site on Kylemore Road, Dublin, as construction recommenced across the country last week. Photograph: Crispin Rodwell

 

The impact of the Covid-19 economic shock has been so extreme and so sudden that it has been difficult to get to grips with its implications. Accepting that huge uncertainties remain, new reports from the Irish Fiscal Advisory Council (IFAC) and the Economic and Social Research Institute (ESRI) are valuable in trying to see through the fog of what lies ahead.

There are a number of underlying messages. The obvious one is that the recession is the deepest we have seen in Ireland, with the ESRI estimating that gross domestic product could fall by 12 per cent this year.

The IFAC report frames this well by pointing out that the the economic hit is immense, but that it is possible that the economy could return to its pre-crisis levels in two-and-a-half to three years, as opposed to the 11 years it took after the financial crash. It has detailed and informative analysis on what this means for the public finances.

The IFAC gives its blessing to the Government’s fiscal response in providing extraordinary income supports as well as planning assistance for businesses. It is appropriate, it says, to increase spending and borrowing now and also to borrow more to restart the economy after the worst of the crisis is past.

However, there will be a need to reduce the deficit and set the ratio of debt to national income on a downward path thereafter, most probably requiring some tax increases and spending cuts. If the economy is in a growth phase when this happens, then this may be manageable politically, though even then it will not be easy. If the recession is prolonged and followed by a period of slow growth, it will be all the more challenging. The ESRI presents calculations underlining the importance of ongoing European Central Bank support in the markets to allow Ireland to continue to borrow at current interest rates.

Both reports outline more pessimistic scenarios where a return of the virus leads to further closures and increases the economic cost. In this scenario the ESRI estimates that GDP could fall by 17 per cent this year and unemployment could average not far off one in five of the labour force. The IFAC warns of the risk in a worst-case scenario that the banks might again need State cash. However, it feels on balance that austerity may be avoided.

There is a lot to be done. The ESRI has carried out useful work on the exposure of younger people, in particular, in the jobs market and this presents a big policy challenge. So does helping the tens of thousands of SMEs, where the institute argues that more cash grants may be needed.

There is much to chew on here for those involved in the talks on forming a new government. In times like this, politics is a difficult business. But it is also in such circumstances that it can make a very big difference.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.