Uncertainty builds as Covid-19 takes its toll

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 evening, March 27 at 5 pm. We want to know how your business is dealing with the outbreak, drop us a line at news@fora.ie

We live in some very uncertain times and Irish businesses are certainly feeling it.

This morning Ibec said that “unprecedented levels of uncertainty around business continuity” is the key finding of a major new national business survey conducted on 23 and 24 March 2020.  

Almost nine out of 10 businesses, 86%, cited the uncertainty around the continuity of their business as a challenge at this time. Cost containment (78%), reduced/lost sales (72%), supply chain disruption (68%) and difficulty with remote working (64%) were also key challenges currently facing Irish business.

“The impact on business in Ireland has been dramatic on a macro level and in our survey the most immediate challenge facing many businesses is how to continue to operate in a vastly altered business landscape,” Fergal O’Brien, the director of policy and public affairs at Ibec, said. 

He added that: “Even with the best planning and risk management in the world, the nature of this pandemic is very different to previous economic shocks”.

“The sweeping nature of the restrictions imposed by the public health imperative has resulted in a huge supply-side impact which has widespread implications in terms of lost sales, supply chain disruption and the need to contain costs,” he said. 

Our colleagues over at TheJournal.ie have the details as last night Ireland reported it its biggest rise in deaths from the coronavirus in a single day. A further 255 cases of Covid-19 have been confirmed in the Republic of Ireland, bringing the total number of cases here to 1,819.

Stock markets retreat 

Stock markets on both sides of the Atlantic retreated Friday as investors banked profits from the week’s rally sparked by massive government and central bank action to protect economies from the coronavirus. 

  • Ireland’s Iseq was down by more than 5%
  • London’s FTSE 100 was down by 5.5% 
  • Frankfurt’s Dax 30 lost 3.7% and the CAC 40 in Paris shed 4.2%

On Thursday EU leaders gave eurozone finance ministers a fortnight to come up with a stronger response to the economic havoc wrought by the coronavirus pandemic. During six hours of fraught summit haggling by video conference, the 27 leaders struggled to agree a unified response to the COVID-19 crisis.

Nine countries, including hardest-hit Italy and Spain, had pleaded in a letter ahead of the summit for “corona bonds”, pooled borrowing to cushion the economic blow of the virus, which has sent economies into hibernation and markets into chaotic flux.

The call was given short shrift by wealthy northern countries and instead a summit declaration tasked the Eurogroup of single currency zone finance ministers with coming up with options within two weeks.

G20 nations also pledged a “united front” on Thursday in the fight against coronavirus, and said they were injecting $5 trillion into the global economy to counter the pandemic amid forecasts of a deep recession. 

Economic deterioration

In a release yesterday, the Economic and Social Research Institute (ESRI) said that scenario analysis suggests the Irish economy will fall into recession in 2020 as a result of economic deterioration caused by Covid-19.

According to Ronan Dunphy of Investec, the scale of the challenge facing the economy was “laid bare” yesterday in the economic commentary.

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“Its results indicate that the Irish economy is “almost certainly” heading for a significant contraction in 2020. One of the most striking parts of the report is the potential impact of the outbreak on unemployment. In its scenario, the unemployment rate would soar to 18% in Q2 from 4.8% in February, with the scale of this rise (let alone the pace of it) comfortably outstripping the 8.7pp increase seen in the 18 months to September 2009,” Dunphy said.

This would equate to approximately 300,000 job losses in the economy almost overnight. While the labour market would improve once social restrictions are eased, the ESRI still envisages an unemployment rate of 10.7% in the fourth quarter of the year. 

“Under the ESRI’s scenario, personal consumption could decline by 4% in 2020, even allowing for some ‘catch up’ spending after restrictions are lifted. Combining the impact on consumption with impacts on trade and investment leads to a 7.1% decline in GDP in 2020 and a 4.3% general government deficit this year. In nominal terms, this equates to a deficit in the public finances of €12.7 billion following a €1.4 billion surplus last year,” Dunphy added. 

He added that it is worth noting that the assumptions underpinning the ESRI’s analysis include the expectation that most major economies will have contained the virus by July, and that normal economic activity will resume in the second half of the year. 

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