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Esmond Birnie

Government response is now critical to stop Northern Ireland economy from heading in downward spiral

Esmond Birnie


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Redundancie have been announced at Carphone Warehouse

Redundancie have been announced at Carphone Warehouse

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Redundancie have been announced at Carphone Warehouse

These are unprecedented, uncertain times as the virus and its impact spreads. It might be objected that compared to matters of life and death, the economy is very much a secondary issue.

At the same time, if the economy tips over and businesses fail on a large scale, we have an abundance of evidence from previous experience that unemployment leads to mental and physical sickness.

The economic aspect of the crisis has rippled out from the aviation, travel, hospitality and retail sectors.

As the difficulties have become prolonged, the dislocation of supply chains have begun to impact on parts of manufacturing.

Only a very few parts of the economy have actually seen demand rise - online shopping and delivery, TV subscription services and a Northern Ireland firm, Trimedika, which makes contactless thermometers.

How bad could this all get? Understandably, the various economic forecasts have had to race to keep pace with the spread of the virus.

Only a few weeks ago, international economic organisation the OECD reckoned that between 0.5% and 1.5% could be knocked off what would otherwise have been 3% global growth in 2020.

Even the upper end of that forecast now looks too sanguine. The problem is that it has been hard to find precedents; the Sars outbreak in 2003 barely dented growth but that virus hardly spread beyond China.

During the last recession 12 years ago, output in Northern Ireland fell by somewhere between 5 and 10% depending on the method of measurement used.

There is no necessity for things to be so bad in 2020, but for sure it is unlikely that the local economy will grow this year.

There are some relatively positive considerations. Even though people talk about the virus being like a war, the economic impact need not be like a war - houses, factories and infrastructure are not actually being destroyed.

Also, unlike the onset of the great recession of 2008/09, this crisis did not originate through weaknesses in the financial system. But, for sure, expectations are critical. In a time of great uncertainty, the economy could get locked into a downward spiral.

This is why the response of Government as a sort of lender and economic guarantor of last resort has become so critical.

Last week we saw the Chancellor's immediate commitment of £12bn but more measures are coming.

The Governments of France and Germany have outlined support packages amounting to hundreds of billions of euros.

Somewhat unusually, in giving evidence to a Parliamentary Committee this week, the head of the Office for Budget Responsibility in the UK, Robert Chote, reminded the MPs that during the Second World War the UK Government ran budget deficits equivalent to 20% of GDP (compared to 2% in 2020).

Some of us do have reservations about the sustainability of levels of Government debt but, in the face of the current crisis, there may be little alternative but to 'spend, spend, spend'.

As President Franklin Roosevelt said in March 1933: "The only thing we have to fear is fear itself." And Government action may be part of the necessary confidence-building.

  • Dr Esmond Birnie is Senior Economist at Ulster University Business School
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