Ireland faces a “highly uncertain” recovery from the Covid-19 crisis and may not actually have seen the worst effects as yet, according to global economic think-tank the Organisation for Economic Co-operation and Development (OECD).
As part of its wider global economic outlook, the OECD said Ireland will see a further level of job losses and business closures if there is a second wave of the pandemic, resulting in another public lockdown towards the end of the year.
If that were to happen, the economy would show no recovery whatsoever during 2021, it said, with long-term unemployment a very real threat.
The returning threat of a no-deal Brexit, high household debt levels, weak profit levels across the country’s main banks, and still high levels of general government debt could all hamper Ireland’s recovery process.
The Government should “stand ready”, the OECD said, to further extend its existing suite of support measures; with loan guarantees and public equity injections for viable businesses able to be delivered as needed. Additional liquidity for viable SMEs may also be needed, it said. Although the Irish economy recovered strongly from the financial and sovereign debt crisis, legacies from that period remain which make it more vulnerable to downside risks. As things stand, the OECD sees the Irish economy – in real GDP terms – shrinking by just under 9% in a worst-case scenario this year; that is to say if there is a second widespread Covid-related disruption to business, health and trade. In such a situation, it sees no economic recovery next year.
GDP will likely fall by 6.8% this year if things remain as they are and the country doesn’t suffer a Covid relapse.
Furthermore, the economy could – in that best-case scenario – increase by nearly 5% next year. The OECD’s forecasts generally tally with the EU and the Central Bank.
Unemployment, however, is expected to peak at 12.3% for 2020 as a whole. If there is a second Covid wave, unemployment will stay around the 13% mark next year, the OECD said. In a best-case scenario the country is probably looking at an unemployment rate of around 10.8% this year and 8.5% next. While the OECD sees some pick-up in consumer spending and business investment as Ireland emerges from lockdown, it said the economy will still contract “massively” in the first half of this year with ongoing caution and impaired household and business balance sheets tempering the speed of the recovery.
The OECD said the global economy is likely to fall by 6% this year even if a second Covid outbreak is avoided. It said Europe would suffer a “particularly harsh” economic impact from lengthy lockdowns, with eurozone GDP set for an 11.5% collapse if there is a second wave and even a 9% fall without a relapse.
It said the crisis will leave “long-lasting scars” and it will take a long time to bring economic output back to pre-Covid levels.
“Policymakers were right not to be too slow to introduce emergency measures, and they should now guard against being too quick to withdraw them,” warned OECD secretary-general Angel Gurría.