Public Policy Bulletin, 8 May 2020

May 07, 2020

In today’s bulletin, get the latest insight on COVID-19’s adverse impact on jobs and the Irish economy, as per the CSO’s most recent figures and Fiscal Monitor April 2020. Also, read the EU’s Spring 2020 Economic Forecast projecting a record contraction in the EU economy as a result of the COVID-19 pandemic.

 

COVID-19 crisis continues to impact labour market in April 2020

The COVID-19 crisis has continued to have a significant impact on the labour market in Ireland in April 2020. According to the CSO, while the standard measure of Monthly Unemployment was 5.4 per cent in April 2020, the COVID-19 Adjusted Measure of Unemployment could indicate a rate as high as 28.2 per cent if all claimants of the Pandemic Unemployment Payment were classified as unemployed. This figure marks the country's highest ever rate of unemployment.

The latest figures also show that the Adjusted Measure of Unemployment stood at 30 per cent for men and 26 per cent for women. The youth jobless rate stood at over 52 per cent, while it was over 24 per cent for persons aged 25 years and over.

 

Fiscal Monitor April 2020 highlights COVID-19’s adverse impact on public finances

The Minister for Finance and Public Expenditure and Reform Paschal Donohoe T.D., released the Fiscal Monitor April 2020 as published under the Stability Programme Update.

The Minister stated that the Government’s Stability Programme Update outlined a sharp deterioration in the public finances this year as a result of the COVID-19 pandemic. The figures also show a fall in tax revenues and increase in expenditure. With public finances proving to be in good health before the crisis - a budget surplus, cash balances and reduced debt, the Government is committed to continuing to provide support to ensure the Irish economy recovers as quickly as possible from this crisis.

The top five key takeaway points were:

  • Tax revenues in April 2020 were down by 8 per cent, or €223 million, compared to April 2019.
  • Excise receipts fell 50 per cent year-on-year, or nearly €300 million, reflecting reduced consumption and a fall in new car sales (VRT).
  • At over €20 billion, net voted expenditure to end-April was ahead of profile by €2.4 billion, or 13.5 per cent. In year-on-year terms, expenditure was up €3.8 billion, or over 23 per cent.
  • The rise in expenditure reflects increased departmental drawdown in response to the COVID-19 pandemic, particularly in the areas of health and social protection.
  • An Exchequer deficit of €7.5 billion was recorded to end April 2020.

 

“A deep and uneven recession, an uncertain recovery”, says latest EU economic forecast

The EU’s Spring 2020 Economic Forecast projects that the EU economy will contract by over 7 per cent in 2020 and grow by 6 percent in 2021. Growth projections for the EU and euro area have been revised down by around nine percentage points compared to the Autumn 2019 Economic Forecast.

According to the report, each Member State's economic recovery will depend not only on the evolution of the pandemic in that country, but also on the structure of their economies and their capacity to respond with stabilising policies. Given the interdependence of EU economies, the dynamics of the recovery in each Member State will also affect the strength of the recovery of other Member States. 

Additionally, noting the departure of the UK as an EU Member State, and given that the future relations between the EU and the UK are not yet clear, projections for 2021 are based on a purely technical assumption of status quo in terms of their trading relations.

The key messages were as follows:

  1. There will be a large hit to growth followed by an incomplete recovery
  2. Unemployment is set to increase, though policy measures should limit the rise
  3. There will be a steep drop in inflation
  4. Decisive policy measures will cause public deficits and debt to rise
  5. The forecast is clouded by a higher than usual degree of uncertainty

The European Commission's next economic forecast will be the Summer 2020 Interim Economic Forecast which is scheduled to be published in July 2020. This will cover only GDP growth and inflation. The next full forecast will be in November 2020.

 

Government announces a support package of over €6 billion to support businesses impacted by COVID-19

The Irish Government announced on 2 May 2020 a suite of measures to further support small, medium and larger business that are negatively impacted by COVID-19. With the total package amounting to over €6 billion, the measures include:

  • A €2 billion Pandemic Stabilisation and Recovery Fund within the Ireland Strategic Investment Fund (ISIF), which will make capital available to medium and large enterprises on commercial terms
  • A €2 billion COVID-19 Credit Guarantee Scheme to support lending to SMEs for terms ranging from 3 months to 6 years, which will be below market interest rates
  •  The ‘warehousing’ of tax liabilities for a period of twelve months after recommencement of trading during which time there will be no debt enforcement action taken by Revenue and no interest charge accruing in respect of the warehoused debt
  • The waiving of commercial rates for a three-month period beginning on 27 March for businesses that have been forced to close due to public health requirements
  •  Provision of a Restart Fund for micro and small businesses of €250 million for micro and small enterprises

This announcement followed the publication of the Government’s Roadmap for Reopening Society & Business, which sets out a five stage plan (starting 18 May 2020) to ease the COVID-19 restrictions and reopen Ireland’s economy and society.

 

Read all our updates on our Public Policy web centre.