Daniel McConnell: Chink of light in gloomiest of outlooks from Donohoe

We may be at the start of possibly our worst ever recession, but there are some small grounds for hope, writes political editor Daniel McConnell
Daniel McConnell: Chink of light in gloomiest of outlooks from Donohoe
Department of Finance chief economist John McCarthy and Finance Minister Paschal Donohoe in Government Buildings for the publication of the Stability Programme Update 2020. Picture: Leon Farrell

We may be at the start of possibly our worst ever recession, but there are some small grounds for hope, writes Daniel McConnell

“This update is happening against the backdrop of the first global pandemic in 102 years and the result of that is the deepest recession since the Great Depression of the 1930s but it is not just the depth of it, it is the breadth of the recession,” came the assessment of John McCarthy who is the chief economist at the Department of Finance.

His reason for saying that was, unlike the financial crash which primarily affected rich countries, the Covid-19 is a truly global phenomenon, hitting wealthy and poor countries alike.

Standing side by side with his boss, Finance minister Paschal Donohoe at a press conference, Mr McCarthy in a somewhat detached fashion, laid out the dire financial figures as to where the economy finds itself because of the Covid-19 crisis.

The headline figures, notably a deficit of €23bn, unemployment of 25%, and a sharp rise in our national debt — are worse than what we encountered during the financial crisis of a decade ago.

To put it in context, at the start of the year, before the crisis began, the Government was predicting a surplus of €1.4bn.

The numbers, presented by Mr Donohoe and Mr McCarthy, form the basis of the Stability Programme Update, which is a legal financial update the country has to submit as part of the EU.

However, the working assumption is that the numbers as presented are based on the current lockdown restrictions easing after the 12-week period as originally set out by the Government.

When clarified, that 12-week period is until the end of May even though the restrictions are in place until May 5.

Should the public health advice dictate the lockdown needs to continue, we were told as we picked our jaws up off the floor, that the deficit could run to €30bn by year-end.

“Our projections today assume that the current containment measures remain in place for 12 weeks and that they are gradually eased thereafter,” Mr Donohoe clarified.

So the plan is clear.

A gradual move back to normality as opposed to one big bang. The prolonged restrictions are cleared to stay as the Cabinet decided to outlaw any major public events until the end of summer.

In terms of our national debt, which is already extremely high at above €200bn, by year-end that total is likely to top €218bn. However, despite all this doom and gloom, there is a silver lining.

Unlike 10 years ago, despite the explosion in our deficit numbers, the country is still able to borrow money on the international markets and do so with relative ease.

This is a testament to the work done by successive governments to move the economy into a surplus position as well as the realisation that this is not a crisis of our own making as it was in 2008.

We are unlikely to find ourselves, this year or next, getting priced out of the markets as Finance Minister Brian Lenihan was in the run up to the Troika bailout of November 2010.

The plus side from your and personal perspective is the reduced risk of austerity, either by way of tax increases or reductions in government spending.

Mr Donohoe and Mr McCarthy came under repeated questioning on that very point and the minister made clear that it is a given that the vast majority of workers have seen a partial or total reduction in their income.

Lobbing tax increases on falling income is not the solution to rescuing the economy, he said clearly.

Echoing recent comments from Fianna Fáil leader Micheál Martin, Donohoe said that there will have to be, at European level, greater tolerance of higher deficits, especially in the short run.

He said that while Ireland and many other countries may find themselves in breach of EU fiscal rules, there has to be a recognition of the Covid-19 related element to that debt explosion.

Mr McCarthy chimed in to say that the European Central Bank is also providing a backstop of €750bn to allow such extraordinary spending to occur. Another €250bn in other support is available if required, he said.

Mr Donohoe set out that the road to recovery will be slow, gradual and utterly dependent on the public health advice on the attempts to suppress the virus.

He dismissed consideration that he and the Government will come to a point where the economic considerations will begin to outweigh the health need, saying to do that would be to undermine the collective national effort to date.

Mr Donohoe said he is hopeful the country will not suffer another lost decade as a result of this crisis as we did in the last one.

He accepted that some parts of the economy have taken the best part of a decade to recover from the financial crash only to be walloped again.

However, he said there is cause for hope that the country can bounce back.

He has to be optimistic as minister, but in fairness, the country is in a far better state now to fight this battle than we were a decade ago.

That is at least a cause for some hope.

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