Minister for Finance Paschal Donohoe has signalled that the Government's economic forecasts will be cut next month as the coronavirus outbreak is predicted to have the potential to slow global growth to the lowest levels since the 2008 financial crisis.
"Our openness and integration into the global economy means that we will inevitably be impacted by the global slowdown," Mr Donohoe said in a speech at Chartered Accountants Ireland on Wednesday evening.
“To what extent, it is too early to say, but it follows that weaker growth will affect our short-term outlook and my department will update its projects in April,” he added.
Growth forecast
The Department of Finance in early January had upgraded its 2020 gross domestic product (GDP) growth forecast to 3.9 per cent from 0.7 per cent, as the threat of a no-deal Brexit receded. At the time, the World Health Organisation was saying that a cluster of 50 pneumonia cases in the Chinese city of Wuhan may be due to a new type of virus.
More than 93,000 cases of the coronavirus have now been confirmed globally, and the death toll has exceeded 3,000 people, with most of the deaths in China.
Mr Donohoe said that a euro zone finance ministers teleconference earlier on Wednesday focused solely on the virus.
“The economic fallout is no longer confined to China,” he said. “It is, of course, impossible, at this stage, to accurately predict the economic cost of the outbreak. However, it is safe to say that global GDP growth will be impacted in the first quarter of this year.”
The ongoing spread of Covid-19 prompted International Monetary Fund managing director Kristalina Georgieva to signal that her organisation will cut its global growth forecast for 2020 to below last year's 2.9 per cent rate.
Meanwhile, the European Commission warned euro zone finance ministers before their teleconference call that both France and Italy faced the risk of being plunged into recession, while a prolonged outbreak could lead to a "vicious" spiral of falling financial markets.
Action
On Tuesday, the G7 advanced world economies stopped short of co-ordinated action to support economies amid the outbreak, and the US Federal Reserve announced its first emergency rate cut since the collapse of Lehman Brothers in 2008.
Mr Donohoe said Irish public finances remained “strong” and provided a cushion “whatever impact may arise”.
“This is because we have eliminated the deficit and have run surpluses for the past two years,” he said.
“Because of this, we can allow budgetary policy to play a counter-cyclical role in the event of a large pass-through to the Irish economy. The best way of doing this is by allowing the surplus to fall through taking in less tax revenue from a lower level of economic activity and paying out more by way of social transfers to those who may be in need.”
