The fallout for the Irish economy from the Covid-19 storm is less severe than once feared, as Government finances shape up well over recent weeks, the budget watchdog has said.
The Irish Fiscal Advisory Council (Ifac) has told the Irish Examiner the worst of its fears that Ireland was heading into a severe economic slump as outlined in its assessment in late May was now less likely. One of two other scenarios it mapped out at the time -- for either a "mild" or "central" outcome -- was now more likely, it said.
Its latest assessment is based on its reading of economic figures as well as the way Government finances have stood up in recent months, helped by some key sources of tax revenues.
In late May, Ifac mapped out a "mild", a "central" and a "severe" scenario for the economic effects of the disease. The severe scenario envisaged the State's debt soaring and entailing sizeable Government spending "adjustments" or austerity, in future years.
“The economy has been deeply impacted by the Covid-19 shock, but current data suggest that it might be towards the less severe end of the range of scenarios the council envisaged in its May report," Ifac chief economist Eddie Casey said.
"Both economic and budgetary figures so far have looked better than in our worst-case scenario. But many businesses still face major challenges and there are still many downside risks," he said. The risk of a further wave of the pandemic will continue to weigh on the economy, Mr Casey said.
However, the more upbeat assessment of the economy's resilience will come as welcome to news to the Government in the week that Taoiseach Micheál Martin and Tánaiste Leo Varadkar unveiled their summer stimulus package, which leading economists have said could have been more ambitious.
The package featured €5.4bn in additional spending and tax cuts, as well as a pre-announced €2bn credit-guarantee loan scheme, which has no upfront cost for the exchequer.
The scale of the measures fell short of the stimulus packages unveiled in other countries.
KBC Bank chief economist Austin Hughes said there was room to do more in October's budget and that other countries had already injected more money to cushion their economies.
"It falls short of some comparator countries in terms of fiscal support," Mr Hughes said, with the cumulative measures so far in Ireland amounting to around 9% of GDP, or around €30bn. That compares with direct supports in Germany costing 18% of GDP; 17% in Austria at 17%; and 13% of GDP in both Denmark and the Netherlands, Mr Hughes said.
He said it was widely accepted that Government spending and supports were necessary to alleviate the immediate downturn and to limit the longterm damage.
Mr Austin praised the Government's decision to extend the wage-subsidy scheme and the pandemic unemployment payments through to the start of spring next year as measures to bolster business confidence.
Dermot O'Leary, chief economist at broker Goodbody, said the size of the "direct and indirect support continues to lag peers" as the focus turns to October's budget.