The economic shock from Covid-19 was felt more suddenly and deeply by the Irish economy than the financial crisis, but the quick reaction of governments and central bankers means the rebound will be faster, according to the Economic and Social Research Institute (ESRI).
While the State was subjected to budget cuts from the outset of the 2008 global financial crisis (GFC), the Government reacted to coronavirus pandemic in March by launching a large stimulus package, the ESRI said in a note titled Comparing two recessions in Ireland: Global Financial Crisis vs Covid-19.
In addition, the European Central Bank launched an emergency bond-buying programme that would rise to €1.85 trillion as of early December, stepping into the market to keep interest rates low as governments across Europe started borrowing heavily to shore up their health systems and economies.
Borrowing costs
"These lower borrowing costs have created additional fiscal space for the Irish Government to fund the large deficits that will be run in 2020 and 2021," said the ESRI. "On the other hand, in the early phase of the GFC, the ECB's monetary policy was much more conservative and the yields on Irish Government debt were substantially higher, peaking at over 10 per cent as private markets shunned Irish debt."
It was only when then ECB president Mario Draghi vowed in 2012 to do "whatever it takes" to save the euro that bond yields started to come down, it noted. Irish 10-year government bond yields reached a record low of minus 0.32 per cent last Friday.
While Irish unemployment levels would rise gradually over four years to a peak of over 16 per cent in 2012 during the last crisis, it spiked at over 30 per cent within a matter of months of the State going into lockdown in March, the ESRI noted. It had fallen back to 15 per cent by August before rising to 21 per cent in November as a result of the latest round of Covid-19 restrictions.
Lower household debt levels at the start of the current crisis have also helped. Going into the previous recession the level of household debt was over €200 billion, or more than 200 per cent of disposable income. It had fallen back to 130 billion, or a ratio of just over 100 per cent, by the first quarter of this year, the ESRI said.
