The economist who covers Ireland for the Organisation for Cooperation and Development said the Government will need to plan for further economic costs should restrictions need to be re-imposed if the Covid-19 pandemic were to flare up again later this year.
Senior economist Ben Westmore also said he was watching the spike in the claimant counts under the pandemic payment schemes and urged the Government to continue to be flexible with business supports to meet the challenges of an evolving crisis in the coming months.
In an interview with the Irish examiner, he praised the Government for ushering in “appropriate” measures to protect the economy and for it having costed its Covid-19 claimant payments and business supports over the current 12-week period of restrictions.
However, he said that if it becomes clear towards the end of the 12 weeks that further restrictions were required then the Government should take “a very flexible approach” to roll out new measures to help businesses.
“There will be permanent damage to the economy and the only question is how much and that will depend on what happens with the virus, but it also depends on what policymakers are doing. The Irish Government is trying to do all that is possible to protect the economy from the shock and to insulate it from long term damage,” Mr Westmore said.
He said that the forecasts by the Central Bank and others that unemployment could peak at 25% before falling back again following restrictions of 12 weeks were feasible.
However, the Government will also need to plan for “second-wave effects” and for scenarios such as restrictions that were first lifted having to be put back into place again should the pandemic re-flare in the second half of the year.
“The health situation is very serious and no country has been immune and no country has been immune from the huge economic fallout,” Mr Westmore said.
He said Ireland was among the first countries to close its schools and to embrace containment measures and has seen the success of its efforts in the flattening in the rise of new virus cases.
“In terms of the economic impact, it will be huge in all European countries. The scale of the effects will depend on how long the restrictions go on and whether there is a confinement period and [if there were] a second wave of infections and that the restrictions needed to be put in place again,” he said.
The rise in the claimant count -- which had jumped to over 710,000 by last week -- highlighted “the severity of the crisis in Ireland” but the figures were nonetheless in line with the huge increases posted in the US, he said.
On the public finances, he welcomed the progress Ireland had made to lower its debt burden and that other European countries “will be more fragile if the crisis is prolonged”.
The Irish banks also were in much better shape since the financial storm of a decade ago and were better recapitalised with strong capital ratios.
He said Irish banks in stress tests came out well under a scenario of a Europe-wide recession but if the crisis “continues to reverberate for a long period of time” banks in all countries will be under pressure, Mr Westmore said.