TAOISEACH LEO VARADKAR has said he wants to avoid “another era of austerity” as the Central Bank has predicted the unemployment rate could rise to 25% as a result of the Covid-19 crisis.
In its quarterly bulletin published today, the Central Bank describes the “severe economic shock” brought about by the coronavirus as “fundamentally different in nature”.
The prediction was made after figures released by the CSO showed there are now over 500,000 people either out of work or receiving pandemic support payments.
Reacting to the worsening economic outlook, Varadkar said the country was “heading into a recession” but that it was “in a stronger position” than in 2008.
While the Central Bank’s bulletin is entirely dedicated to the impact of the Covid-19 pandemic, it lauds the “exceptional efforts” of healthcare professionals and repeatedly refers to the “necessary containment measures”.
The bulletin notes that “given the extent of the unknowns, it is not possible to produce a conventional forecast of the outlook”. Despite this, it attempts to make several predictions about the economic outlook for the country.
Assuming that the current restrictions “remain in place for a three-month period before being rolled back”, the Central Bank predicts that GDP could decline by 8.3% this year.
On that basis, the report attempts to predict what it would mean for jobs.
“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 included, the unemployment rate could rise to around 25% in coming months,” the Central Bank states.
The unemployment rate is now estimated at about 17% having been at 4.8% in February.
The Central Bank is therefore suggesting that significantly more jobs could be lost in the economy before any improvement happens. Should the economy in Ireland and across the world improve the unemployment rate may go back down, but it “may still remain over 10% by the end of the year”.
Delving further into specific elements of the labour market, the Central Bank says data indicates that there were 320,000 job losses even before the introduction of last Friday’s containment measures.
It also points out that there are about 650,000 people who work in occupations where “social distancing is not possible and where remote working is not applicable”.
Not good
Speaking at a briefing in Government Buildings yesterday, Varadkar didn’t attempt to downplay the scale of the problems, stating that “the economic picture is very bad”.
“The number of jobs lost in the past week or so, was lost over a period of three years during the economic and financial crisis of 2008 onwards, so it’s a very sharp, very sudden unexpected shock to our economy,” Varadkar said.
The Taoiseach said the country was “facing into a public health emergency which in turn is leading to an economic recession”.
Varadkar said the government is already looking towards how it can “get our society working again” and added that his objective is to “avoid another era of austerity in Ireland”.
“The period of austerity that happened after 2008 under a previous government was never a policy choice, they had no choice. The country lost its capacity to borrow, had to go to the lender of last resort, which is the IMF and the ECB and others, and there was very strict conditionality attached to that. I believe we can avoid it this time,” he said.
The Taoiseach said the government may consider tax cuts to stimulate the economy but warned that it will only become clear if this is possible “when we can count the cost” after the crisis ends.
Mark Cassidy, director of economics and statistics at the Central Bank, also said that the potential recovery from the Covid-19 crisis can’t yet be estimated.
“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,” he said.
“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.”
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