Covid-19: Bracing for an economic shock

This evening’s main points for business.

By Philip Connolly Editor, Fora
IN THIS TURBULENT time, Fora is going to bring you updates every morning and evening on the most relevant issues for Irish business dealing with the outbreak of Covid-19. Here are the main points this morning, April 3 at 5:30 pm. We want to know how your business is dealing with the outbreak, drop us a line at news@fora.ie

The Central Bank of Ireland published it’s latest quarterly bulletin earlier today and it wasn’t exactly an encouraging read.  

Covid-19 has triggered a severe economic shock that is fundamentally different in nature and scope from types of shocks previously witnessed, it said. Breaking down the numbers, it said that pandemic could cost the exchequer some €22 billion and shrink GDP by 8.2% this year.

Taoiseach Leo Varadkar has said he wants to avoid “another era of austerity” as the Central Bank predicted the unemployment rate could rise to 25% as a result of the Covid-19 crisis. 

Public finances are already feeling the burden, as tax returns in March were more than €1 billion below expectations. 

Our colleagues over at TheJournal.ie have the latest details as last night health officials confirmed that another 13 people have died from Covid-19 in the Republic of Ireland as a further 402 cases were confirmed, bringing the total number of confirmed cases here to 3,849.

Counting the cost 

Given the extent of the unknowns, the Central Bank said it is not possible to produce a conventional forecast of the outlook.

Instead, making heavy use of judgement and drawing on a range of analytical tools to provide an assessment and estimate of the potential impact of the crisis under certain assumptions.

Base on the initial impacts that have been observed and the assumption that containment measures and restrictions remain in place for three months before being rolled back, GDP could decline by 8.3% in 2020.

In this scenario, given the fall in employment which has occurred to date and is in prospect, and if all those receiving Covid-19 related payments are counted as unemployed, the unemployment rate would rise to around 25% in the second quarter, it said.

On the assumption that both domestic and global economic activity begins to recover during the second half of the year, the unemployment rate could then begin to move gradually lower, though it may remain relatively high and in double figures by the end of the year.

“The near-term outlook for the economy is very unfavourable and, beyond that, the path ahead for economy depends on the path of the virus, both domestically and globally,” Mark Cassidy, director of economics and statistics, said.  

“The starting point for the recovery will depend on the depth and duration of the downturn, which is, as yet, unknown, though the hope is that forceful containment measures can shorten the period during which economic activity has come to a stop. When it emerges, the pace of recovery is likely to depend on factors such as the extent to which households and firms have been scarred by the downturn, the degree to which precautionary behaviour unwinds, the recovery in employment and incomes and, possibly also, the degree of stimulus in place to provide some impetus to recovery,” he added. 

Yesterday’s Live Register data, combined with new data on temporary COVID-19 related employment support schemes, show that more than half a million people are in receipt of unemployment related benefits.

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“Despite these issues, it is important to try and put the data we have in context. Of course these are unprecedented times, but the scale of these numbers is truly extraordinary. The peak level of unemployment during the last financial crisis was 356,000 in Q3 2011,” Ronan Dunphy, of Investec, said.

Stocks on the slide

Europe’s stock markets slid on Friday as global novel coronavirus infections topped one million and the death toll surpassed 50,000.

In initial deals:

  • Ireland’s Iseq closed by 1.96%;
  • London’s benchmark FTSE 100 erased 1.18%;
  • In the eurozone, the Euro Stoxx 50 index was down by 0.95%

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Note: This piece was updated with additional information during the day. With reporting from AFP