The Irish economy will shrink by at least 10% this year and could shrink more than 15% if a second wave of coronavirus forces restrictions on movement to last six months longer than expected, the government said on Tuesday.
But Finance Minister Paschal Donohoe said he believed the economy had entered the crisis in good health and would bounce back quickly, with growth as high as 6% next year and the economy returning to its pre-crisis position by 2022.
Ireland has boasted the fastest economic growth in the European Union for most of the past five years and a decade after being one of the worst hit by the global financial crisis it entered the current crisis near full employment and a balanced budget.
The shut-down of the economy in mid-March to curb the spread of coronavirus means it will see gross domestic product shrink by 10.5% in the best-case scenario, the finance department said in forecasts to be submitted to the European Union.
That implies a deficit of 7.4%, or around 23 billion euros, it said, nudging up Ireland's debt-to-GDP ratio to 69.1% from 58.8% at the end of 2019.
"We are clearly now in the midst of a severe recession, both domestically and globally," Donohoe told journalists. "The scarring effect and uncertainty mean that recovery in the second half of the year will be gradual."
But, he added, the economy and labor market remained resilient. "They do have real underlying strengths that were there before the crisis, and this crisis has not altered," he said.
Ireland, which has a population of 4.9 million, has so far seen 15,652 coronavirus infections and 687 related deaths and its health service has not so far reached capacity.
The government has ordered people to stay home other than short exercise and all schools, bars, restaurants and non-essential shops are closed at least until May 5.
The finance department's forecasts are based on the assumption that the country can very slowly begin to ease restrictions after a shut-down of around 12 weeks, Donohoe said.
The country's chief medical officer last week said the country had contained and effectively suppressed the first wave of the coronavirus outbreak.
But if the unwinding of the restrictions takes three or six months longer than expected, gross domestic product would shrink by 13.8% or 15.3% this year, the department of finance projections showed.
"The central scenario implicitly assumes that the virus is essentially suppressed in the second quarter," the department said in a statement.
Donohoe said the figures, which are to be submitted to the European Union, were more scenarios rather than forecasts in the usual sense due to the unpredictability of the pandemic.
Ireland's central bank earlier this month forecast that the economy would shrink 8.3% if the economy was locked down for three months.
As a result of the expected deficit, the country's debt agency on Tuesday increased its borrowing plans for the year by 10 billion euros, to between 20 and 24 billion euros.
The National Treasury Management Agency said it was well placed to issue the additional debt, citing high demand for a recent placement, the smoothing of the country's maturity profile in recent years and the bond-buying of the European Central Bank. (Reuters)