Ireland could see 'repeated lockdowns and wide financial distress' during three-year recession

The virus may see our national debt soar by 60%

Coronavirus will spark a three-year recession and a staggering 60% hike in our national debt, it is warned today.

In a worst case scenario we will see "repeated lockdowns and wide financial distress".

The dire warnings are contained in an Irish Fiscal Advisory Council (IFAC) quarterly report.

And it says the next Government will be forced into difficult decisions about tax increases and reduced spending.

But its Chairman, Sebastian Barnes, believes the economy can recover “without severe austerity".

The council predicts that the economic aftershock from Covid-19 will be severe and the recovery will take between two and three and a half years.

The expert economists are forecasting that the “deep economic downturn of the first half of 2020 will have a lasting effect”.

And they have calculated that the national debt will spiral to as high as 160% as a result of the devastating impact Covid-19 will wreak on our economy.

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Only last year, the country finally saw its national debt dip below 100% (99%) after decades of trying.

Mr Barnes said last night: “The Government has introduced large-scale policy supports, which is appropriate to tackle the immediate crisis.

“The next phase, the recovery, would warrant a sizeable fiscal stimulus.

“While some fiscal adjustment is likely to be needed in the third phase—when the economy settles on a new growth path—severe austerity can be avoided.”

The report shows that government debt could return to near-record levels of 160% before we’re out of the woods.

Scenarios put forward by the researchers in the IFAC suggest that debt ratios could range from 114 to 160 per cent in 2021, up from 99 per cent in 2019.

This high debt level will leave the economy more vulnerable to future shocks.

However, getting the economy back on track should not be as hard as it was following the 2008 financial crash.

The IFAC believes that the next government will need to “make difficult decisions about taxes and spending to achieve its objectives, while reducing debt to a safer level” and that “strengthening the fiscal framework could help.”

The report states: “This report develops three scenarios to 2025.

“A ‘mild’ scenario where conditions improve rapidly, with lasting damage minimised.

“A ‘central’ scenario, building on official forecasts, where confinement measures ease as planned but with lasting impacts.

“And a ‘severe scenario with repeat lockdowns and wider financial distress.

“The scenarios imply it would take 2 to 3.5 years to return to pre-crisis levels of activity.

“This depends on health outcomes.

“By contrast, the Irish economy took 11 years to recover after the financial crisis.”