The economic decline caused by the Corona crisis is enormous and rapid. The number of people claiming the new Covid-19 unemployment payment of €350 was at 507,000 in early April and thousands more have yet to be paid because of issues such as inaccurate information. Meanwhile, the live register measuring the ‘normal’ level of unemployment was at 207,000 at the end of March, and then were over 200,000 people on the wage-subsidy scheme.
The rapidity of the slump in employment is unprecedented: In the last Irish economic collapse, employment fell by ‘only’ 335,000 over four years, not four weeks.
It would be a comforting thought that after the lockdown that previous levels of economic activity, employment and spending will immediately resume but, unfortunately, that will not occur. The recovery in jobs will be much slower than the decline although it will be achieved more quickly than the six years it took under the last crisis.
The recovery will begin when the current restrictions are eased. The ESRI and Central Bank assessments of recovery patterns assume the lockdown will be for 12 weeks based on health risks.
The economy won’t leap back because consumer confidence may be damaged. There are hundreds of thousands of people on unemployment payments and many workers on the 70:30 wage subsidy scheme will not receive the 30% top-up from employers, while many workers who went into the crisis in poor financial shape have suffered pay cuts.
On the other hand, there are large numbers of consumers who remain on full pay and will have accumulated financial resources during the lock down because of the limited spending options. However, many may wish to forgo spending, especially if they fear the virus will return.
This reluctance to resume normal mobility and behaviour will more pronounced if there is no complete victory over the virus. And some areas of the economy will be held back, for example international tourism is expected to recover very slowly.
Home cooking may replace some visits to restaurants. Online shopping will be accelerated. Gardening and walking may partially replace other forms of market-based activity.
Investor confidence will be weak and will take some time to recover. As is the case for Ireland, the global economy is in sharp retreat, restricting Irish exports prospects, although Government spending will increase and boost economic activity.
The Central Bank presented a scenario where employment dropped to 1.86 million in the second quarter and recovery started in the summer quarter.
Its scenario means that at the end of 2020, we will have recovered most of the lost jobs but employment in the fourth quarter will still be 125,000 below the level of late 2019.
A less optimistic scenario which sees employment sliding to 1.8 million in this quarter, and the pick-up of jobs running at a slower pace thereafter, would leave employment at the end of the year 300,000 below the level of late 2019.
Of course, the pace of recovery, the economic conditions in major markets such as the US and the UK, the impact on consumer psychology and economic behaviour are uncertain.
And the pace of recovery can also be improved by supportive public policy measures.
My intention is not to depress readers. Ideally economic activity would immediately bounce back to pre-virus levels. I believe that is unlikely and the road to full recovery will take time. We should be prepared for this.