It is increasingly clear that the economic damage from the pandemic will be deep and lasting. The rise in cases of the virus as economies reopen across Europe has necessitated new restrictions and led to concern about what is to come. Governments are trying to balance fresh restrictions with the need to avoid further widespread lockdowns, but this is not easy. Trying to protect both lives and livelihoods, as Taoiseach Micheál Martin put it, is challenging.
A series of reports from the Department of Business, Enterprise and Innovation over the weekend highlights the growing challenges in many sectors. Tourism is the worst hit, with a threat to 200,000 jobs and a likely loss to the economy of €2.3 billion. Many other sectors are also affected – some, like aviation, very severely. In all cases the forecasts are surrounded with huge uncertainty.
Fortunately, many other sectors remain healthier and in a recent report credit rating agency Moodys underlined the strengths of the economy. But, the damage is spreading and the longer the pandemic continues ,the greater will be the impact on consumer and business confidence.
Fortunately, borrowing markets remain friendly and money can be raised at a very low cost
The twin challenge facing the Government is to try to help the worst-hit sectors while also doing what it can to limit the wider damage. Measures such as the extension of wage subsidies to next spring and the extension of the Pandemic Unemployment Payment were correct. But further policy challenges lie ahead and will be framed by the path of the virus. Like their counterparts worldwide, the Government faces the tricky task of adapting supports to the possibility that there will no effective vaccine available for a prolonged period, while holding to the hope that there might be.
It is difficult, now, to be prescriptive, on the policy approach given the many uncertainties about the path of the virus and its impact. Fortunately, borrowing markets remain friendly and money can be raised at a very low cost. More supports may be needed, particularly for the worst-hit sectors. But there are limits – and the budget deficit for this year is already likely to top 10 per cent of GDP or €30 billion in cash terms.