The catastrophic consequences of the coronavirus pandemic on Irish businesses and the world economy were further crystalised this week as fears grow that things may never be the same again for some industries.
The International Monetary Fund (IMF) said the Covid-19 crisis has brought the global economy to its knees and reiterated earlier warnings that it is likely to result in the worst economic downturn since the Great Depression.
It also warned that global debt markets may come to a sudden stop, just like the 2008 credit crunch, if companies become more distressed amid a prolonged recession due to the crisis.
Under its best-case scenario, the world is likely to lose a cumulative $9 trillion (€8.2 trillion) in output over two years – greater than the combined gross domestic product of Germany and Japan.
In terms of the fund’s outlook for Ireland, it expects the economy to contract by 6.8 per cent this year, before bouncing back strongly next year, growing by 6.3 per cent against a euro-zone average of 4.7 per cent.
However, the agency said the jobless rate here will rise to an average of 12 per cent in 2020, up from a low of 4.8 per cent in February, and will stay elevated at almost 8 per cent in 2021.
Echoing those sentiments, job vacancies in the Republic have fallen by a third as coronavirus-hit businesses scale back recruitment, a study by the Central Bank and recruitment website Indeed showed.
Unsurprisingly, job opportunities were “falling fastest” in occupations that were directly exposed to the restrictive measures, such as beauty and wellness (down 80 per cent) and hospitality and tourism (down 76 per cent).
Separate research also showed a massive reduction in spending and ATM withdrawals in late March and early April on foot of tougher social-distancing rules and retail closures.
If the current level of spending and ATM withdrawals were to continue for the remainder of April, it is estimated that overall card spending and cash withdrawals would be €2.6 billion, or 40 per cent, lower than in April 2019.
European Central Bank vice president Luis de Guindos said Europe is likely to experience a more severe recession than the rest of the world and might not show proper signs of recovery until next year.
The UK economy, for example, faces a 35 per cent plunge in output in the second quarter of 2020 if a lockdown to fight the spread of coronavirus remains in place for three months, the country’s fiscal watchdog warned.
At home, borrowers who have been hit financially by Covid-19 could be offered a six-month break on their mortgage payments if talks between the banks’ lobbying body and the Central Bank are successful.
To date, 45,000 payment breaks have been agreed between lenders and borrowers, amounting to about 5 per cent of all home loans in the market.
The coronavirus also hit Irish goods exports in February, as they dropped by almost €2.2 billion. Central Statistics Office figures show goods exports fell by 16 per cent to €11.6 billion in February.
Separately, the Dublin Port Company said the volume of goods travelling through the port fell by 470,000 tonnes in the first quarter, which was a 4.8 per cent decline versus the same three months a year earlier.
What with all the turmoil to the global economy, there was considerable relief as the world’s top oil producers pulled off a historic deal to cut global petroleum output by nearly a 10th, ending the devastating price war between Saudi Arabia and Russia.
In other world news, the UK said it would not agree to an extension of the transition period to allow for more time to reach a deal on the post-Brexit relationship with the European Union, despite the Covid-19 crisis.
British and European Union negotiators plan to hash out a post-Brexit trade deal by video conference in rounds of talks starting next week. Just when you thought things couldn’t get any more difficult.
Keeping businesses afloat and workers employed
With government formation in Dublin talks nearing endgame, it will be hoped that the full attention of the State’s leaders will soon return to dealing with the fallout from Covid-19 – both in human and economic terms.
Keeping as many Irish businesses afloat and people in work will be high on the list of priorities. In that vein, Minister for Finance Paschal Donohoe said he was increasing the amount the Government will pay to help keep workers employed.
The temporary wage subsidy was originally designed to pay 70 per cent of people’s salaries up to a maximum of €410 a week. Employers were permitted to top this up to 100 per cent where they could.
But, employers noted they were struggling to retain people on lower pay and fewer hours – especially part-time workers – who felt they could earn as much or more by claiming the alternative pandemic unemployment benefit.
In response, noting the aim of the scheme was “to maximise staff retention and firm viability” during the crisis, Donohoe said the State would fund up to 85 per cent of salaries.
Another big issue for businesses in the coming months will be the effect that remote working has on productivity. A survey of chief financial officers (CFOs) here and in other countries this week showed companies here are more worried.
Productivity losses from the Covid-19 crisis are likely to be "more severe" in Ireland because of a lack of remote working capabilities, possibly aggravated by poor-quality broadband in certain areas, according to the survey by PwC.
The firm found that nearly two-thirds of Irish respondents expected to see a pronounced drop in productivity in the month ahead, significantly more than their international counterparts (45 per cent).
Meanwhile, companies themselves continued with their firefighting efforts.
Cardboard box-making giant Smurfit Kappa Group scrapped its plans to pay a €193 million final dividend on last year's earnings, while
healthcare services company UDG also suspended its interim dividend.
Deloitte was the only "Big Four" accountancy firm operating in Ireland to commit this week to retaining its staff throughout crisis, though the firm's partners have taken pay cuts.
The firm's position contrasts with that of rivals PwC, EY and KPMG, as none made a public commitment to retain staff or confirmed if their highest paid partners would take salary cuts.
The bleeding reached fashion outlets Oasis and Warehouse during the week as the High Court appointed provisional liquidators to their Irish arms, which between them employ 248 people at 13 stores and 29 concession stands.
Meanwhile, Bord Bia announced details of its supports strategy for the Republic’s food, drink and horticulture sector, including a €1 million marketing grant scheme.
Construction sector looks to bounce back
The housing crisis that dominated the general election campaign and indeed the last number of years has only been exacerbated by Covid-19, with the virus halting the building of almost 60,000 new homes worth €10 billion.
Construction ceased on all but essential projects last month to comply with restrictions aimed at stopping the spread of coronavirus, stalling projects worth an estimated €21 billion.
Developers were building almost 60,000 homes on 796 sites around the country when lockdowns began in March, according to Construction Information Services, which monitors the industry in Ireland.
Joseph McCaffrey, director of quantity surveyors Duke McCaffrey, this week said the delay resulting from the Government ban on all but essential construction could create difficulties for builders and their customers.
“We would foresee a lot of contractual disputes on the horizon,” McCaffrey warned. Building contracts set deadlines for the work to be completed, and many impose financial penalties for delays.
That being said, Minister for Finance Paschal Donohoe said the Government will pay builders working on State projects to cover the cost of maintaining sites closed as a result of the coronavirus lockdown.
Separately, Construction Industry Federation director general Tom Parlon said he thinks the sector should be able to gradually reopen in the first phase of the economy getting restarted.
The federation has drawn up a new operating procedure for the sector after wide consultation, which is to provide guidelines for sites, including on physical distancing at work and also when travelling to work.
One project in the works is a major extension to the Liffey Valley Centre in Dublin, after property group Hines lodged a €135 million plan. The extension is expected to deliver an additional €128.65 million in retail revenues by 2025.
