Economist predict Ireland likely to be offered new bank guarantee amidst Covid-19 crisis

Ireland, as part of a coordinated approach with the eurozone, will likely be offered some sort of bank guarantee to respond to the Covid-19 fallout, such is the exceptional nature of the crisis, leading economists have said.

Dermot O’Leary, chief economist at Goodbody, said a national support package could likely involve two parts like has happened elsewhere — with fiscal measures from the Government, as well as guarantee of loans in the banks.

He said that the fiscal measures already taken by the Government as part of its response to the crisis in recent days was similar in size to the British response in terms of the welfare and business supports that Boris Johnson’s government announced on Tuesday night.

Mr O’Leary said, however, that the second part of the response in seeking a potential bank guarantee was “a different” proposition because of the controversial history that Ireland faced with its guarantee in 2008

No small country can any longer go out on a limb without the support of the eurozone powers, France and Germany, Mr O’Leary said.

Tony Foley, emeritus associate professor of economics at DCU Business School, said the economic fallout of the crisis was so large that any outcome could likely “defy expectations” and will require a bank guarantee.

“We are used to conventional slumps like in 2008. The OECD was talking about world economic growth as recently as a few weeks ago but that is inconceivable now.

“We are talking about a very large effect from the virus,” he said.

“Yes, it is another guarantee. We are entering into the same difficulties of a State having to get a guarantee — whether it is a full or partial guarantee remains to be seen.

“There are all these business loans which businesses cannot pay,” he said.

Mr Foley said that the eurozone is facing a potentially more severe dilemma than it faced in the last financial crisis before former ECB president Mario Draghi pledged “to do whatever it takes to preserve the euro”.

For Ireland, Mr Foley estimated the hit to the exchequer from additional social and health spending and from the loss of tax revenues would top €30bn.

He said he estimated that the number of jobs that will be lost in the next six months — as retail becomes the latest sector to shed jobs and close shops — would rise to 400,000 people, which suggests that the unemployment rate could surge to 20%.

Sector-by-sector, he said that employment in agriculture should remain at current levels; he expects employment numbers in industry to drop by 15% amid an overall international recession; but for construction employment levels to be unchanged.

However, Mr Foley estimated that retail and wholesale, which employs 310,000 people, would see a 50% drop in the the number of jobs; transport and storage would lose 15% of its jobs; and accounting and financial services and communications would likely suffer a 10% drop in numbers in their sectors.

Public administration will see no change in jobs numbers and a small drop of 3% in private education jobs, but health service job numbers wil surge by 30%, Mr Foley said.