In terms of economic analysis and economy-watching, the last three months have been truly awesome in every negative sense of that word. We have been faced with a set of circumstances that nobody would have believed possible. I never envisaged in my wildest dreams that I would end up commenting on a monthly decline of 36% in retail sales or an unemployment rate jumping from 4.8% to 28.2% over a two-month period. That is exactly what I find myself doing at the moment.
On the upside, such statistics are reflecting a virtual shut down of large swathes of the economy, and as the economy is gradually re-opened, many economic statistics will rebound quite quickly. On the downside however, my fear is that the crisis might leave a permanent legacy in the form of lost businesses that might never re-emerge.
With the acceleration of the roadmap for reopening the economy and the ongoing COVID-related employment supports, there is a fair chance that the damage will be kept to a minimum. However, it would be naïve not to accept that for the next 12 to 18 months the reality for businesses in the retail sector; the accommodation and food services sector; the airline industry and some other businesses will be challenging and sustained State support will be required at a significant cost the Exchequer.
This will necessitate running significant budget deficits over the next couple of years, but thanks to our decision over a decade ago not to default on debt and the growth recovery that has been experienced over the past 5 years, Ireland is in a good place to borrow. In addition, thanks to the ECB’s ongoing aggressive bond-buying programme, Ireland and indeed most other EU countries are able to borrow at historically low interest rates. We have to accept higher deficits over the next couple of years as this will be a necessary price to pay for helping businesses survive and re-building the economy. Fiscal austerity should not be part of the popular lexicon for at least the next 2 years.