Irish unemployment is likely to surge to over 18% by early summer and could take more than a year before it falls back to its pre-crisis level of under 5% — depending on the success of measures to rein in the Covid-19 pandemic here and across the world.
The stark economic outlook by Ireland’s leading think tank, the Economic and Social Research Institute (ESRI), is the first authoritative look at the huge economic damage brought by the pandemic in terms of the sudden surge in joblessness.
The ESRI warns that the economy is facing a shock that could in some parts rival the fallout experienced from the onset of the banking and property crash in 2008, in terms of the speed of the jobs shakeout and the suddenness of the strain it puts on the public finances, as government expenditure soars and its tax revenues plummet.
The jobs shakeout over a “very short period” hits hard the wholesale and retail trades, and accommodation and food services, sectors which together employed 480,000 people only a few weeks ago, the ESRI report notes.
“This speed of change in the fortunes of the domestic and international labour markets is unprecedented,” according to research professor Kieran McQuinn and senior research officer Conor O’Toole, the co-authors of the ESRI report.
“The likely increase in Irish unemployment will be substantial in size and rapid in nature”, surging to 18% by early summer before falling back to 11% late this year, amid a deep recession as GDP contracts by over 7%, states the report.
Under a benign scenario, Mr McQuinn says unemployment may take to the end of next year to again come close to matching the 4.8% jobless rate posted last month — when just over 120,000 people were on the official unemployment count.
The projections are based on an economic recovery here and overseas in the second half of the year following a lockdown lasting 12 weeks.
But that means “if this [rebound] does not occur, then the results will be even more adverse for the domestic economy”, according to the authors.
“The swiftness of the economic deterioration is unprecedented in modern times and in many respects exceeds that of the financial crisis,” says the report.
The scale of the additional spending by the Government and the loss in revenues it suffers from the slump in Vat and income taxes, swiftly puts the public finances back into the red.
The ESRI projects that a small budget surplus in 2019 turns into a deficit of €12.7bn this year, equivalent to a deficit of at least 4.3% of GDP.
“Obviously if there is a significant delay in the economic recovery both globally and domestically, then the size of this deficit would also increase as the year progresses,” states the authors.