The Government will need to spend considerably more than the €3bn it has budgeted so far to battle the impacts of the coronavirus pandemic, according to KBC economist Austin Hughes.
r Hughes made the comments in KBC Bank Ireland's measure of consumer confidence which dropped sharply in March to a reading of 77.3 from 85.2 in February, although the period did not capture the impact of school and widespread closures.
The impact measured in March would result in three quarters of a percentage point being knocked off consumer spending, a figure that is likely to rise sharply.
"At this point, it seems likely that the April sentiment reading will reflect a further marked increase in coronavirus-related concerns. The blow to consumer confidence on top of the emerging hit to incomes underscores the importance of a substantive and speedy policy response to the economic and financial fallout," Mr Hughes wrote.
The €3bn package already announced by the Government includes up to €2.4bn in income support measures, and the conditions around the release of these funds have been loosened so people will get the money more quickly.
"As modified domestic demand amounts to around €50bn per quarter, it would seem possible that the fiscal cost could readily rise to four or five times the €3bn package initially indicated by the Government," the KBC economist said.
Modified domestic demand strips out the impact of multinational companies from the economy and provides a truer measure of economic activity.
The potential scale of the impact on Ireland was illustrated by sharp reductions to global growth forecasts yesterday from the Institute of International Finance, a body that covers the world's most important financial groups.
"Given the drag from social distancing and other measures, we expect US GDP to fall 0.8pc quarter-on-quarter (annualised) in the first quarter, followed by a bigger drop of -8.9pc in the second. The US is thus already in recession, with annual average growth of negative 0.4pc," the group's chief economist Robin Brooks wrote in a report.
"We expect a 2020 contraction of 2.8pc in the eurozone and 1.5pc in Japan, which - along with China growth of 3.5pc - puts global growth at 0.4pc," he said.
Stockbroker Davy warned of the impact of the virus on Irish banks in a report, which noted that loan losses would likely come in at the upper end of target ranges, and that there would be higher credit loss adjustments and lower lending growth.
This week, the Central Bank of Ireland announced that it would cut the amount of money banks need to keep in reserve as a buffer to zero from 1pc. It pledged that the measure would remain in place until at least the first quarter of next year, allowing banks to lend more.