Irish unemployment is likely to surge and peak at 18% by early summer and could take more than a year before falling back to its pre-crisis level -- 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 the economy is facing a shock that could, in some parts, rival the fallout experienced from 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 shake out over a “very short period” hits hard the wholesale and retail trades, and accommodation and food services, sectors which together employed over 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% from around 5% by early summer before falling back to 11% late this year, the report says. The deep recession means GDP contracts by over 7%.
Under one 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 120,100 people were unemployed.
The speed of any subsequent economic recovery here will likely depend on the success of pandemic control measures elsewhere because “while the domestic authorities may be successful in limiting the spread of the virus, the performance of the recovery of the Irish economy will now also depend on the effectiveness with which other countries deal with Covid-19,” the ESRI warns.
The outlook is based on assumptions and are not to be taken as forecasts such is the huge weight of uncertainty surrounding the pandemic, the ESRI says.
The projections are nonetheless based on an economic recovery overseas in the second half of the year that follows 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,” the report says.
In a detailed analysis, the think tank estimates that the Irish household weekly spend of €837 slumps to €631 for each week during the 12 weeks of the lockdown, and climbs to €914 in the week the lockdown is lifted.
However, despite grocery spending soaring during the lockdown, overall spending is still lower as the level of consumption, including on clothing, takeaway meals, public transport, and motor fuel, is lost.
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 -- that's equivalent to a deficit of at least 4.3% of GDP.
“It may be necessary to increase the deficit beyond this amount if additional health expenditure and-or social welfare payments are required,” the ESRI says.
“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,” the authors add.
They welcome "payment holidays" by the banks and want more done to help rent costs and utility bills and other fixed charges.
And they say that the ECB, other global central banks, and governments around the world have a heavy duty to ensure that the crisis doesn’t get any worse.
The issue of eurobonds would be one such "imaginative" response, or the ECB could loan funds to the European Investment Bank, the ESRI says.