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Pandemic poised to leave lasting scars on Irish economy

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It seems likely that Irish tourist spots such as Dún Aengus will have to increasingly reply on British and mainland European visitors

It seems likely that Irish tourist spots such as Dún Aengus will have to increasingly reply on British and mainland European visitors

It seems likely that Irish tourist spots such as Dún Aengus will have to increasingly reply on British and mainland European visitors

As nations throughout the world struggle to limit the spread of Covid-19, they are subjecting their citizens and economies to restrictions that would have been inconceivable only a few weeks ago.

The economic impact of the pandemic is likely to be devastating. Goldman Sachs is predicting that the US economy will shrink by 24pc on an annualised basis in the second quarter.

In Germany, the IFO economic institute is forecasting a fall in full-year economic output of up to 11pc.

As the epidemic shows no signs of abating, the economic damage keeps mounting up.

Ryanair, Europe's largest airline, announced on Wednesday that it would be grounding over 90pc of its fleet, while IAG, which owns Aer Lingus, has cut April and May capacity by 75pc. How many of Europe's grounded airlines will ever fly again?

Outgoing Social Protection Minister Regina Doherty admitted on Tuesday that predictions of 400,000 Irish job losses, more than a fifth of all private sector employment, could prove to be conservative.

Governments everywhere are tearing up their budgets. The US Senate approved a $2trn (€1.8trn) stimulus package last week, the equivalent of 10pc of GDP.

On this side of the Atlantic, Germany is readying an €822bn stimulus, almost 25pc of GDP.

The €7bn, 2pc of GDP, which our Government has committed to spending seems paltry by comparison.

"We need to put whole swathes of the economy to sleep, but to keep them functioning and alive. Then, when the crisis ends, we will need a massive reboot," said IBEC director of policy Fergal O'Brien.

Given the likely cost and the long-term nature of the changes resulting from the pandemic, the economic impact of Covid-19 will most likely resemble that of a major war, rather than recent downturns.

So what can we expect when Covid-19 eventually relaxes its grip?

The pandemic has dramatically demonstrated just how vulnerable long supply chains are to sudden disruption. Expect all companies to pay much greater attention to this vulnerability after the crisis has passed.

This will be happening at the same time as the new OECD multinational tax rules come into force. Even before Covid-19, Finance Minister Paschal Donohoe predicted that the new rules would cost Ireland at least €500m a year from 2022, and up to €2bn in the longer term.

Throw in Covid-19, which is likely to decimate company profits, and the hit to our annual near-€11bn corporation tax take, of which about €9bn comes from the multinationals, and the impact is set to come much sooner than 2022 - and cost us far more than what Donohoe was expecting.

It is not just the multinationals. Ireland's largest indigenous industry, food and drink, has devoted enormous effort to developing new markets in recent years. Almost a third of our €13bn food and drink exports now go to countries outside the EU and the UK.

China is now the largest market for Irish beef, while China and the US are major markets for Irish dairy products.

While a Bord Bia spokesman cautions that it is still too early to predict how these new markets will be affected by the pandemic, it is reasonable to assume that Irish exports will find the going much tougher in these areas after the outbreak.

At least the Irish food and drink sector is still open for business.

Ireland's hospitality sector, which employs approximately 260,000 people, about one in nine of all jobs, has now effectively shut, as pubs, hotels, restaurants and visitor attractions all close their doors.

Overseas visitors contributed €5.6bn to the Irish economy in 2018, according to Fáilte Ireland. Visitors from North America and other non-British and non-EU markets accounted for €2.3bn, 41pc, of this. How many of these visitors can we expect this summer, or even in 2021 or 2022? Irish tourism will have to largely rely on British and mainland European visitors for the foreseeable future.

Of course, it's not all bad news. While Irish food and drink exports will probably struggle in China and the US, South American beef and New Zealand dairy products will probably encounter similar difficulties in British and mainland European markets.

And as for tourism, while we can expect a sharp fall-off in North American and other long-haul travellers, some of the Europeans and Britons who would previously have holidayed in China, south-east Asia or the United States might now be persuaded to consider Ireland instead.

Major crises have a knack of accelerating trends that were already under way. Large numbers of those still in work are now working from home.

How many of these home-based workers will return to the office after Covid-19 has departed?

"Will we need offices?" said Goodbody economist Dermot O'Leary, who is among those temporarily working from home. "The way we work has been transformed; meetings are still taking place.

"There is no reason why we couldn't work this way all of the time."

With the pandemic having closed virtually all retail outlets except supermarkets and chemists, online's market share will increase even further. What will Covid-19's impact on retail and office property values be?

More of us working from home will also mean less commuting. Crude oil prices fell to $27 a barrel last week, down 60pc since the beginning of the year.

How much of this fall represents fears of a short-term economic downturn and how much a realisation that changing work patterns will permanently reduce energy consumption?

The health sector also looks set to be transformed by the pandemic.

Tuesday's announcement that private hospitals would form part of the public health system for the duration of the outbreak represented the de facto nationalisation of such hospitals.

Will this be a temporary move or the start of something more permanent? The final outcome will almost certainly be determined by how long the emergency lasts.

If the private hospitals are permanently subsumed into the public system then what are the implications for VHI and the other private health insurers?

Even at this early stage, it is clear that Covid-19 will result in a much greater role for the State, not just in Ireland but most developed countries.

While this expansion of the State will be initially largely funded by borrowing, taxes will also have to rise. This will be accompanied by a significant roll-back of globalisation, something that will force this country to rely less on the multinationals and focus more on developing a greater number of internationally competitive indigenous companies.

In the midst of all this upheaval, there is likely to be one constant.

For decades, planners and environmentalists have bemoaned the Irish preference for semi-detached and one-off houses, rather than mainland European-style apartments.

Covid-19 may turn these arguments on their head. Whatever their other faults, our dispersed settlement patterns will almost certainly prove to have been highly effective in slowing the spread of the virus.

At least one aspect of our post-pandemic future may turn out to be very similar to our pre-pandemic past.

Sunday Independent