DUBLIN (Reuters) – Ireland’s central bank said on Friday the shock to the economy from the coronavirus pandemic could be greater than in any year of the financial crisis as a record collapse in services sector activity demonstrated the speed of the decline.
Unable to make a conventional forecast without knowing how long the crisis will last, or the economic toll it will take, the bank estimated that gross domestic product could fall by 8.3% in 2020 if current containment measures last three months.
Ireland, whose economy grew by 5.5% last year, ordered its citizens a week ago to stay home until at least April 12 to slow the spread of the virus after a gradual ramping up of restrictions from mid-March.
As a result the transport, tourism and leisure sectors led a collapse in services sector output last month, according to the AIB IHS Markit Purchasing Managers’ Index (PMI) for services which fell to 32.5 from 59.9 in February on Friday.
It was the first time the survey dropped below the 50 mark that separates growth from contraction since 2012 when years of strong growth in the economy began. The month-on-month drop was more than four times greater than the previous record.
The central bank expects the jobless rate to soar to around 25% during the second quarter, from 4.8% at the start of the pandemic. The rate could fall back to 12.6% by the end of the year, Central Bank Director of Economics Mark Cassidy said.
A surge in people seeking some form of welfare income support since the introduction of measures to limit the spread of the virus has left the state supporting 513,350 people, or a fifth of the labour force, data showed on Thursday.
The central bank estimated that the total cost of the fiscal measures introduced so far stood at 8.2 billion euros, which on top of tax revenues that already fell sharply in March would turn the government’s forceast pre-coronavirus budget surplus of 0.7% of GDP into a decit of 6%.
The interventions will push debt as a proportion of gross national income or GNI* – a new, more accurate way of measuring the debt pile – to 112% from 97% in 2019.
It said the situation could be worse if the public health situation does not improve over the coming months, with added risks including firms forced to close during containment, the extent of permanent job losses or permanent income cuts and changes to consumer behaviour as the pandemic eases.
“Even if we get a grip on the pandemic within the time period that we are assuming, there is a lot of uncertainty about the longer-term degree of scarring or more persistent effects,” Cassidy told a conference call.
Finance Minister Paschal Donohoe said the central bank’s GDP estimate was in line with the possible scenarios his department were looking at and that the government would have to examine ways to support exporters as many big markets may lag Ireland’s recovery from the virus.
(Additional reporting by Padraic Halpin, editing by Catherine Evans and Angus MacSwan)