| 9.6°C Dublin

Irish vulnerability highlighted as EU forecasts its worst-ever recession

  

Close

Stock picture

Stock picture

REUTERS

Stock picture

The European Union will experience its worst ever recession in the coming months due to the lockdown of the bloc's economies as a result of efforts to stem the spread of coronavirus.

That is according to the European Commission's spring forecasts, which were released yesterday, the latest economic estimates for here and across the EU.

However, they were more optimistic than many, including those for Ireland from our Government and the Central Bank of Ireland.

The direction of travel remains the same however, and the shock to the EU economy from a 16pc contraction in the three months to the end of June, a period that marks the tightest lockdowns across the bloc, has already pushed tens of millions of people on to State lifelines so they can make ends meet.

Without the billions of euro pledged by governments and the European Central Bank, the commission report said the recession would have been 4.75 percentage points deeper in terms of lost output than the 7.4pc decline expected for the EU.

The commission expects the Irish economy to shrink by 7.5pc this year compared with a Department of Finance forecast of a decline of more than 10pc. But for the 1.1 million people who already have to rely on State income support to keep themselves fed and housed, what matters now is the recovery.

The commission, like almost every forecaster, is wedded to the idea of relatively rapid recovery once the harsh initial shock is over.

It expects the Irish and EU economies to bounce back with around 6pc growth next year, with the recovery here largely driven by a rise in domestic demand as workers return to their jobs.

However, it acknowledged Ireland has some extra vulnerabilities that could mean the economy is less able to recover rapidly.

"The large uncertainty surrounding this outlook is compounded by factors specific to Ireland, such as changes in the international taxation environment.

"Moreover, Ireland is particularly affected by the future relationship between the EU and the UK," the commission said.

A breakdown in Brexit trade talks is looking more likely thanks to London's hard-line stance that the negotiations need to be completed this year.

The Department of Finance's estimates are based on "a relatively benign form of Brexit, whereby a free-trade agreement is agreed".

Irish Independent