Irish economic growth will grind to a halt and unemployment will creep above 5% this year under Italy-style quarantines to control the Covid-19 outbreak here, the Economic and Social Research Institute has projected in new forecasts.
ESRI research professor Kieran McQuinn told the Irish Examiner that domestic economic growth, even under a four-week quarantine period, will slow this year, while a quarantine of around eight weeks or beyond will lead to “a very significant” fallout in which Irish GDP falls to zero and unemployment rises.
Under the ESRI’s central projection for a quarantine period of four weeks, GDP slows from 5.5% in 2019 to between 3% and 3.5% this year.
A quarantine, whether voluntary or imposed by the authorities as the Italian government sanctioned in Lombardy in recent days, involves the widespread closure of schools for a number of weeks.
For Ireland, the Covid-19 crisis hits economic activity through a sharp fall in world trade but also mainly as a result of measures the Government takes to control the outbreak through quarantines, which hits consumption, Mr McQuinn said.
For small firms, Mr McQuinn said “it is clear” that credit lines are coming under pressure and there would be a knock-on effect on the public finances in the form of lower income tax and Vat revenues, even before taking account of any additional spending that is required by the Government to mitigate the virus.
As the Italian death toll rose and Italy imposed official quarantines, Irish business groups have stepped up their warnings about the economic fallout here.
Isme chief executive Neil McDonnell said that to save small businesses, the Government should defer the payments of employer taxes.
He warned that the closure of schools will have an outsized effect on the economy here as thousands of healthy people are forced out of the labour force to look after their children.
The public finances will be hit because “no matter which way you cut the cake, someone gets hits”, said Mr McDonnell.
Brian Keegan, director of public affairs at Chartered Accountants Ireland, said businesses are looking for some sort of relief in paying employer taxes.
The chief economist at the IMF, Gita Gopinath, also stepped up the fund’s warnings over the economic fallout from the coronavirus outbreak.
“On the supply side, there is a direct reduction in the supply of labour from unwell workers, from caregivers who have to take care of kids because of school closures, and sadly, from increased mortality,” she said yesterday.
“But an even larger effect on economic activity occurs because of efforts to contain the spread of the disease through lockdowns and quarantines, which lead to a drop in capacity utilisation.”
The IMF said there was a wide range of measures for governments to consider to mitigate the economic toll of the coronavirus outbreak on businesses and households.
“Households and businesses hit by supply disruptions and a drop in demand could be targeted to receive cash transfers, wage subsidies, and tax relief, helping people to meet their needs and businesses to stay afloat,” the fund stated.