Unemployment will likely exceed the Government’s budget forecasts if level five restrictions are put in place, as retail and hospitality firms never reopen, leading economists have warned.
In its budget forecasts this week, the Government projected unemployment would remain at an elevated level this year, with the loss of around 319,000 jobs, and an average unemployment rate of 10.3% in 2021.
The projections include people on the pandemic unemployment payments, but exclude the many thousands whose jobs rely on the other main Covid-19 employment support, the wage support scheme.
As the top health advisers urge the Government to impose level five restrictions after a huge spike in Covid-19 cases, many economists warn the toughest level of controls over the key Christmas trading period will lead to significant business failures.
Kieran McQuinn, research professor at the Economic and Social Research Institute (ESRI), said the think tank had forecast unemployment to settle at around 12% at the end of December, but that level five restrictions would mean that the jobless rate would be higher.
For next year, unemployment would push higher than the average of 9.9% the ESRI has forecast if level five restrictions were to be extended, said Prof McQuinn.
“A lot of businesses which have managed to survive to this time, if they are forced to go into another prolonged period of lockdown, then it could be fatal for a number of those businesses.”
The build-up to Christmas is a key period for retailers who are looking to build up cash flow after the lockdown earlier this year, said Prof McQuinn.
UCC economist Seamus Coffey, a former chair of the Irish Fiscal Advisory Council, said that level five restrictions would lead to retailers and hospitality businesses closing permanently.
Major issues will be to keep businesses and construction sites open, said Mr Coffey.
Fergal O’Brien, director of policy and public affairs at business group Ibec, said level five restrictions would lead to the loss of jobs. Implementing restrictions should be about finding other ways to control the virus “without depriving people of work”, he said.
“What is crucial is how many sectors can be kept open," said Mr O'Brien, adding that keeping construction and building sites open is crucial to offset some of the worst fears.
Contrasting with the lockdown in March and April, he said restrictions imposed during November will do much harm to retailers and hospitality firms. “If they can’t trade in the period up to Christmas, then we would be looking at some quite significant business failures,” said Mr O’Brien.
On funding increased unemployment payments and business supports, Prof McQuinn said the Government can borrow strongly at ultra-low rates and is also being helped by the buoyancy of corporate tax receipts.
He said that keeping building sites open will help in avoiding further problems in the future over the shortage of housing.
Mr Coffey said, in its budget sums, the Government has accounted for contingency funds if the restrictions move to level five but some of the funds allocated for 2021 may need to be brought forward into this year.