The Governor of the Central Bank has warned that the country is only at "the end of the beginning" of the economic shock caused by the Covid 19 pandemic and that the long term impact is yet to fully materialise.
Gabriel Makhlouf said that with almost half of all mortgage holders working in a sector affected by lockdown measures, the country faces running up a €30bn deficit this year.
He said some people will struggle to meet their financial commitments and some firms will not re-open.
According to the Central Bank’s Financial Stability Review, employment fell by 600,000 over just one quarter and business sentiment is the weakest on record. An estimated 80% of businesses, covering almost 70% of employment, are affected by the containment measures.
And it says that in addition to the high number of mortgage holders impacted by the lockdown measures, "a significant share of households have limited liquid assets and income support payments may be insufficient to meet mortgage repayments in some cases".
At the end of May, the Central Bank said there were almost 193,000 active payment breaks across Ireland’s five main banks, relating to outstanding loan exposures worth €24.9 billion.
Of these, €10.1 billion related to Irish mortgage holders, almost 11% of those banks’ mortgage portfolio in Ireland.
A further €8 billion of loans related to Irish-resident firms, covering almost a quarter of total loans to such companies.
Mr Makhlouf said minimising the extent to which liquidity issues are followed by solvency issues will be important.
However, he accepted that households and businesses will be severely impacted.
"Some people will struggle to meet their financial commitments and some firms will not re-open," he said.
However, the Governor said the current economic difficulties are very different from the circumstances Ireland faced during the last recession.
"Unlike the experience of a decade ago, the financial system is not the origin of the current challenges but, like the rest of the economy, it is affected by them. We are perhaps only at the end of the beginning of seeing those challenges emerge," he said.
“Depending on the success of the containment measures, most current projections expect that the worst of the economic impact will be evident in the second quarter of 2020, with a gradual recovery to begin in the third quarter,” the review states. "Even with this trajectory, the unemployment rate is still expected to average in the mid-teens (%) for 2020 as a whole, with the domestic economy to contract by between 9 and 15%."
Mr Makhlouf was speaking on a day when the economic fallout of the virus was outlined to the Oireachtas Committee on Covid-19.
There, Michael McMahon of the Irish Fiscal Advisory Council echoed the Central Bank assessment that this crisis is different to the last recession.
"The points we would stress about why this would be a recovery that is faster than the financial crisis is that Ireland went into this crisis, both in terms of household and corporate balance sheet, but also in terms of the fiscal position, in a much healthier place.
However, he added: "How we recover this depends on things that are very hard to ascertain. At what rate do people decide they will be confident to go back to shopping in non-essential shops and at what rate will people engage with the entertainment industry, like pubs or restaurants? "These behavioural responses will depend on lots of different things that are difficult to ascertain.
"With some fiscal stimulus in the recovery phase after the initial health impact has been mitigated, Ireland could be back in some two-and-a-half years to three years."
IFAC's Sebastien Barnes told the committee the fiscal adjustments needed range from "€6bn to €14bn over the period 2023 to 2025", but he pointed out that adjustment would still be less than a third of what was implemented after the 2008 crisis.
The secretary general of the Department of Public Expenditure and Reform Robert Watt told the committee Ireland will spend €82 billion this year, up 20% on 2019, which he said is "probably the largest increase in nominal spending that we have ever had".
Meanwhile, the coronavirus death toll has risen to 1,709 after a further three deaths were announced last night.
There were 14 new confirmed cases of the virus, taking the total to 25,334 since the Covid-19 outbreak began.