Ireland’s labour market is set to face the largest quarter shock in living memory, the Economic and Social Research Institute (ESRI) has said.
The ESRI said that the ongoing Covid-19 pandemic is the greatest threat that the Irish economy has faced since the financial crisis.
In its quarterly Quarterly Economic Commentary, ESRI said that under the government’s measures to tackle the coronavirus crisis, the Irish economy would shrink by 7.1% this year.
This deficit also reflects the significant increase in spending the government will implement to support workers who have lost their jobs, assist businesses facing declines in revenue and provide additional health expenditure needed to combat the virus. https://t.co/sjd4i9R1WF— ESRI Dublin (@ESRIDublin) March 26, 2020
It also forecast that the unemployment rate will increase to 18% in the second quarter, up from 4.8% in the previous quarter, as more than 350,000 people lose their jobs.
The ESRI said that given the uncertainty around the current virus outbreak, it is not possible to undertake traditional economic forecasts.
It said that its commentary provides a scenario analysis which attempts to assess the economic impact of the current restrictions and closures.
It said that the primary policy objective is the implementation of the necessary public health measures in whatever form is required including the closure and restrictions on normal economic and social life.
The ESRI said it is assuming the government’s measures stay in place for a 12-week period and the economy recovers afterwards.
It said that consumption, investment and net trade would all fall sharply, households would cut spending and firms would cancel or postpone investment, and external demand for Irish goods and services will fall.
The labour market, which had been in a position of strength before the spread of the pandemic, is set to face the largest one quarter shock in living memory, the ESRI added.
“The general Government balance, which had been expected to be in surplus at the start of the year, would now register a 4.3% deficit,” the report stated.
“This is as a result of the significant fall in revenues the exchequer will face due to the contraction in the economy.
“It also reflects the significant increase in spending the Government will implement in order to support workers who have lost their jobs, assist businesses facing declines in revenue and provide additional health expenditure needed to combat the virus.
“It must be noted that this current scenario may turn out to be too benign.
“As events are unfolding rapidly, we will revisit these scenarios more frequently than our traditional release pattern.”