This is the most unusual recession any of us will ever see. So far parts of the economy – maybe 20 per cent in jobs terms – are in real trouble and much of the rest continues on, if not untouched then at least in reasonable shape. The economic challenge facing the Government is to protect the sectors worst hit – and do what it can to keep the rest of the economy on an even keel.
With the health experts saying that the path of the virus is now on a knife edge, then so too is the outlook for the economy. And with some sectors hit really hard and others doing fine, the political challenges here will be nothing short of explosive, as we saw during the week in the row over wet pubs.
This week’s economic data tells the story. The unemployment rate continues to fall, but remains very high at 16.8 per cent. As the economy reopens, people have moved off the pandemic unemployment payment, but the rate at which they are moving back to employment has slowed.
Ibec economist Gerard Brady calculates that only around 55 per cent of the people employed in sectors which reopened in phases one and two – mainly construction and parts of the retail sector – are back in work and 50 per cent of the phase three reopening – the rest of retail and hairdressers and other personal services.
Tourism remains in deep trouble, and arts and events are largely shut. There will be some significant redundancies in autumn – in sectors such as travel and retail, for example. Unemployment may stay stuck at a high level of about 15 per cent as politics resumes. The key question then is whether there will be any economic growth momentum – and that all comes back to the trends in the virus.
There is hope
The other key figures this week were the exchequer returns – and these provided some room for hope. They showed income tax for the first seven months of the year running in line with the same period last year, well ahead of revised annual forecasts made by the Department of Finance in April.
How does this square with the big surge in unemployment? This is largely because the Irish income tax system takes little tax from lower earners – and it is, in the main, lower earners who are losing their jobs. The hard-hit accommodation and food sector is responsible for 7 per cent of jobs, but just 1 per cent on income tax revenue. The highly paid ICT sector, in contrast, has 4 per cent of the employees and 12 per cent of the income tax liabilities. The biggest corporate taxpayers continued to create jobs through the crisis, according to Revenue data. The tax take overall – also boosted by corporation tax – will of course fall sharply this year, but it is now running at about €5 billion, or nearly 20 per cent, above the official April predictions.
This could give the Government a bit more leeway later this year and moving into 2021. It could keep borrowing below €30 billion, Extending wage supports until next spring in the July stimulus was the right thing to do. But pressure will be intense to do more for the worst-hit sectors.
As we see signs of the virus’s resilience, helping the sectors in most trouble becomes more complicated. Absent a vaccine, for example, when can the wet pubs reopen in anything like the way they used to ? Or big indoor events be held? As we learn more, living and operating with the virus should become more possible, but some things may remain off limits for a long time.
Musicians and those in the arts were furious during the week with comments made by Minister for Social Protection Heather Humphreys when she said "some jobs will not come back and there is no point in waiting for the never-never" and that "it is best that we help people to reskill, retrain and look at other jobs they can take up."
But what if she is correct that some jobs will never return? Surely this is now a possibility, perhaps even a likelihood in some sectors?
Banking jobs
The problem is that reskilling and retraining people is easier said than done. We clearly wouldn’t expect Mundy, one of those upset by the Minister’s comments, to retrain as an IT consultant. But many of the thousands of others employed in the sector also have specific skills and experience. With the emigration valve closed, the presence of large numbers of younger people without jobs looms and is bound to have a big impact on politics.
It is possible to be both impressed and encouraged at the resilience of much of the economy – and also worried about the sectors in deepest trouble. The risk is that the longer the virus crisis goes on, the wider the economic damage spreads through the economy . We have already seen signs of accelerated job losses in banking, for example. And weakening consumer and business confidence could spread the economic virus much more widely.
This is why the confidence effect of progress on a vaccine or treatments could be so transformative. If people could just feel a bit of firm ground beneath their feet , it would make a huge difference.
When this all started a wise economic head said to me that when it was over the economy would be smaller and everything would have to “recalibrate”. This means that most of us will be a bit worse off – whether via wages falling or the inevitability, though no one will admit it yet, of taxes rising. Some, unfortunately, will be much harder hit as their jobs disappear. The myth of putting the economy to sleep and gently waking it up again is gone. Sleeping Beauty has a bit of a hangover.