Minister for Finance Paschal Donohoe said the coronavirus crisis had resulted in a "severe recession" that was likely to see the economy shrink by 10.5 per cent this year with unemployment soaring to a record 22 per cent, equivalent to one in five workers.
Publishing the Government’s latest Stability Programme Update (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.
The economy is expected to shrink by 10.5 per cent this year, with measures taken to combat Covid-19 here and internationally resulting in a sharp contraction of both domestic and external demand.
“The gradual recovery assumed in the second half of the year is projected to gain momentum next year, with the economy growing by 6 per cent and unemployment falling to below 10 per cent next year,” he said.
However, uncertainty around coronavirus meant the Government’s outlook represented “a scenario, rather than a forecast”, Mr Donohoe said.
Containment measures
The outlook assumes that the current “containment measures” will remain in place for 12 weeks before being gradually lifted.
In more severe scenarios where containment measures are extended into the third or fourth quarters, instead of a projected 10.5 per cent contraction, the economy could shrink by as much as 13.7 or 15.2 per cent.
The baseline scenario is also contingent upon the EU and UK reaching a free trade agreement at the end of the transition period.
Economic activity is not expected to reach its pre-crisis level until 2022.
Mr Donohoe said no decision had been reached on what parts of the economy might be released from restrictions when they are eased. “The most important thing we can do economically is get people back to work in our economy. And as soon as the public health guide facilitates that, that will be a matter of huge focus for me,” he said.
Under the current EU rules, the Government's SPU is submitted to the European Commission in April, but may be revised later in the year on the basis of updated economic forecasts.
The National Treasury Management Agency (NTMA) moved on Tuesday to increase its full-year borrowing plans.
The NTMA now plans to raise between €20 billion and €24 billion in the long-term bond markets in 2020, up from an original plan, announced in December, to sell between €10 billion and €14 billion of securities. It also expects to increase its amount of short-term borrowings by €5 billion to €15 billion this year.
