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Ireland’s economy expected to shrink by 8.5pc this year due to Covid-19

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The European economic decline is expected to be larger than what was initially predicted Photo: Bloomberg

The European economic decline is expected to be larger than what was initially predicted Photo: Bloomberg

Bloomberg

The European economic decline is expected to be larger than what was initially predicted Photo: Bloomberg

Ireland’s economy is expected to shrink by 8.5pc this year due to the impact of Covid-19, according to indicators from the European Commission.

The anticipated decline in economic growth here is greater than the European Union average of 8.3pc.

The overall decline across Europe is expected to be larger than what was initially predicted in the Commission’s Spring Forecast.

It comes as large swaths of the economy have experienced a dramatic slowdown in business on the back of restrictions aimed at limiting the spread of the global pandemic.

Commission vice president, Valdis Dombrovskis, said the economic impact of the lockdown is “more severe” than was initially expected.

“We continue to navigate in stormy waters and face many risks, including another major wave of infections,” Mr Dombrovskis said.

“If anything, this forecast is a powerful illustration of why we need a deal on our ambitious recovery package, NextGenerationEU, to help the economy,” he added.

With most EU member states introducing lockdown measures in mid-March a far longer period of disruption and lockdown has taken place in the second quarter of 2020, therefore economic output is expected to have contracted significantly more than in the first three months of this year.

Nonetheless, early data for May and June suggest that the worst may have passed, according to the Commission.

The recovery is expected to gain traction in the second half of this year, albeit remaining incomplete and uneven across countries.

Meanwhile, the Irish economy is expected to record growth of 6.3pc next year, higher than the EU expected average of 5.8pc.

However, the Commission warned that the risks to the European economic forecast are “exceptionally high and mainly to the downside.”

It said the scale and duration of the pandemic, and of possibly necessary future lockdown measures, remain unknown.

The forecast assumes that lockdown measures will continue to ease and there will not be a ‘second wave' of infections.

There remains to be a risk that the labour market could suffer more long-term scars than expected, and that liquidity difficulties could turn into solvency problems for many companies, according to the Commission.

In addition, it warned that a failure to secure an agreement on the future trading relationship between the UK and the European Union could also result in lower growth, particularly for the UK.

Elsewhere, protectionist policies and an excessive turning away from global production chains could also negatively affect trade and the global economy, the Commission added.

Online Editors