The country is set for a deep recession this year that will eclipse the worst seen in the financial crisis causing mass unemployment and deep scarring that will last for years, new Government forecasts show.
The National Treasury Management Agency (NTMA), which manages funding for the State, has massively hiked its estimate for how much it will borrow this year to a new range of €20bn to €24bn.
The NTMA previously said it expected to borrow between €10bn and €14bn this year and that was mostly to pay off old bonds. The new higher estimate is based on an expected Government spending deficit – a shortfall between the cost of running the State and the income raised mostly through tax and spending.
Far from plotting a rapid “V”-shaped recovery, the economy will grow by 5.8pc next year and the average unemployment level in 2021 will be 9.7pc, a figure last seen in October 2014.
The Department of Finance forecasts showed that it will be 2022 before the economy recovers to the state it was in prior to the pandemic outbreak that has shuttered businesses across the globe and put more than two billion people under lockdown.
Finance Minister Paschal Donohoe said: "We are clearly now in the midst of a severe recession both domestically and globally."
He said the document today sets out a scenario and is not a forecast because of a "lack of visibility about the path ahead" that's "due to factors outside our control".
Mr Donohoe said the projections assume that current virus containment measures remain in place for 12 weeks and they are gradually eased there after.
The document outlines a possible deficit of more than €23bn.
He continued to say: "There is very considerable uncertainty attached to the numbers of today. There are indeed large risks with them, including a prolonged change in our economic circumstances.
"Depending not only on containment measures, here at home. But of course, containment measures in our main trading partners.
"In the space of a few weeks, our jobs market has transformed from a situation of full employment to warn where unemployment has risen, with a speed and scale that is completely unprecedented."
Mr Donohoe insisted that Ireland can respond to the challenges from a position of strength.
He said that there was a budget surplus, the State had cash reserves, and Ireland has a restored reputation on the international market.
The document outlines a possible recovery in the second half of this year with economic growth of 6pc.
It says employment could grow in 2021 with the numbers out of work set to fall below 10pc.
On the challenges ahead Mr Donohoe pledged: "We will recover public health and we will renew our economy...
"In particular, up to €2bn is to be provided to support our health services to both boost capacity to purchase PPE, and to hire new staff to support our systems during this crisis.
"The measures agreed by the government over a 12 week period to provide at least four to four-and-a-half billion euro in income support sick pay and benefits for impacted workers.
"The additional funding has been provided based on current projections."
Mr Donohoe said that he wants to remain hopeful about our economic outlook, while also continuing to be realistic about the coronavirus fallout.
"What this document is doing today is just acknowledging the huge uncertainty that will surround global economy for a period of time. And I'm absolutely confident that the Irish economy can recover.
"I'm certain that we can get as many of our citizens back to work once we're clear where we stand with Covid-19, but I also want to equally be clear that one of the consequences of doing this is we're going to have large deficits, and that over time we will need to reduce that deficit again," Mr Donohoe said.
Last week, the International Monetary Fund forecast that the world economy would shrink by 3pc this year, its worst performance since the Great Depression.
Like the IMF forecasts, there is a risk that the new numbers from Mr Donohoe could underestimate the damage to the economy as they are based on the assumption that the harsh lockdown lasts just 12 weeks and is followed by a gradual reopening of the economy.
Today’s forecasts are harsher than those issued by the Central Bank of Ireland just two weeks ago that estimated the economy would shrink by 8.3pc.
As a result of the economic slump that has put a million workers on state wage support schemes at a cost in the region of €4bn a month, the budget will shift from a small surplus into a deep deficit of 7.4pc of gross domestic product, or €23bn.
Debt ratios will rise sharply as a result of the extra spending and the economic contraction.
Using a measure of the economy that strips out hefty distortions, the ratio of Government debt to Modified Gross National Income will rise to 125.1pc from 99.2pc after years of sharp declines in the post crisis era.
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