Post-virus economic reboot may cost Ireland €25bn, KBC warns

Austin Hughes from KBC

David Chance

The State may find itself footing a bill of up to €25bn to tackle the impact of coronavirus, according to KBC's Austin Hughes.

Much of that funding is likely to be borrowed on the bond market, where the NTMA said it plans to launch a new government bond by syndication - a process underwritten by banks - this month, followed by bond auctions on May 14 and June 11.

KBC Ireland chief economist Mr Hughes initially put the cost of Covid-19 at around €15bn but has now dramatically increased his estimate.

"In much the same way as policy now seeks to 'flatten the curve' in terms of health outcomes by limiting the Covid-19 surge, economic policy should be focusing on 'correcting the curve' in terms of economic outcomes by ensuring scope for a solid rebound in activity after implementing an initial health-related shutdown of output and spending," Mr Hughes wrote.

So far, the Government has earmarked €6.7bn for wage support and other Covid-19 related measures, a number that is equivalent to 1.9pc of economic output here.

Although Mr Hughes said economic demand will recover, the speed and extent of that recovery will be hurt by uncertainty.

"Our sense is that 'reboot' measures on a scale likely to ensure a strong and speedy rebound could amount to a further €10bn to €15bn (versus the early €15bn), implying the overall fiscal impact for Ireland of Covid-19 could be comfortably in excess of 10pc of gross domestic product," Mr Hughes wrote.

The United Nations says 10pc of global GDP could be spent, with poorer nations needing help to cover those bills.

Analysis: Don't expect a quick recovery from ravages of coronavirus - Page 5