Varadkar warns Ireland could suffer ‘multiple economic hits’

Ireland could suffer "multiple economic hits" from Covid-19, the Minister for Enterprise, Trade and Employment, Leo Varadkar, has warned.

Addressing the annual conference of the Dublin Economic Workshop, Mr Varadkar said:"A lot people are talking about what type of recovery we might have, whether it is U-shaped or V-shaped or the Nike tick or even K-shaped."

However, he said these single-hit hypotheses assume the pandemic will only have one economic hit. “It is more likely that there will be multiple waves,” he said.

Mr Varadkar said the current crisis was not like any previous one, and that meant there was no guide for what to expect, which made policy decisions extremely difficult.

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“We can look back at previous banking crises, there have been many sovereign debt crises, asset bubbles, but it’s very hard to see a comparator for this. I think if there is one it’s probably more akin to a war or an invasion, a huge demand shock to the economy, and also wars have phases, you have periods where part of your country may be under occupation and parts aren’t, and then you can get reoccupied again.”

The number of cases has risen from three per 100,000 people to 35 now, and the average number of cases over the past five days was 175 per day.

“I think it’s very possible that we’re going to see multiple waves of the virus, whether they are small waves that lap at our feet or big ones that knock us over again. We just don’t know for sure,” he said.

The over-riding imperative in terms of Government policy was to keep the virus suppressed, Mr Varadkar said.

He also said he was confident that there would be a vaccine, though the timeline for delivery was difficult to predict.

“The best economic policy was to put public health first. If your staff or your customers are sick or worse still, dead, your business isn’t going to do well.”

The Government’s macroeconomic and fiscal policy was to run large deficits, “but we want to be in the middle of the pack when compared to our euro zone peers. We don’t want to be the European country that has the highest deficit as well as pretty big debt because if things do change we’ll be the one picked on first.”

He said he expected the Government’s deficit – the difference between what it spends and what it takes in in taxes – to be close to €30 billion this year.

Debt ratios

Speaking at the same event, the chief economist of the European Central Bank Philip Lane said economic recovery was predicated on tackling the public health crisis first.

He said the hope was that the big debt ratios run up in a crisis would come down naturally as economic growth resumed.

Prof Lane dismissed the suggestion that the pandemic would be similar to an open-ended chronic Great Depression-type shock. “With a pandemic it’s very sharp, it’s not an instant recovery, but there is light at the end of the tunnel.”

In a separate module on whether Ireland was a tax haven, University College Cork economist Seamus Coffey said if the State was truly a tax haven companies from all over the world would flock here, and not just primarily US ones.

He said up to €31 billion in what the US considers taxable profits were being generated from companies based here. So it was more of a case of the US being a “profit sieve” rather than Ireland being a tax haven.