I started working in financial journalism a few weeks after the October 1987 crash. So I missed that one. But in the intervening 30-plus years I have never seen the economic outlook change so quickly – literally in a period of 10 days.
Hence the extraordinarily violent reaction on financial markets. And an economic outlook which, in the short term, is completely transformed.
Crucially, we have no idea when some kind of normality might return, and so confidence is shot.
Think of your own spending. You are still buying groceries. But most likely you are not booking a holiday – in Ireland or abroad – and may have cancelled a trip. You are probably limiting going out to restaurants and pubs. A concert or gig you planned to go to has been cancelled.
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You don’t have to pay the bus driver a few euro to take the kids to school. And maybe you don’t have to pay the creche. And so on.
These cuts in spending ripple out through the economy – quickly. As the inevitable layoffs and short-time working grow, they intensify.
And as the same is happening across the world, with the near certainty now of a global recession, exporters will feel the pain, as well as domestic industries.
Demand is collapsing.
At home, sectors such as tourism, hotels, restaurants and so on will be hit hard. This is the economic price of the entirely justified restrictions – which may be extended or even intensified.
Damage limitation is difficult because of the extraordinary speed with which this has hit, the variety of ways the economy is being affected and, crucially, the nature of the companies in the front line.
Cash flow
There is one key factor which the Government must try to address urgently – the massive hit to cash flow in many industries where demand is simply disappearing.
The companies in the front-line are the thousands of smaller firms reliant on tourism and on people spending and “going out”.
From the upmarket hotels and posh restaurant in Dublin suffering from the collapse of corporate travel to the small B&Bs, pubs and tour operators along the Atlantic Way, this is an unprecedented crisis.
Three weeks ago they were looking ahead to 2020 with some optimism. Now the phone is only ringing with cancellations.
We will soon see the layoffs and short-time working start – and can only hope that most will be temporary.
Some companies will be forced to shut – though most will hang on if the restrictions are kept to a few months. The key job of policy will be to safeguard as many jobs and companies as possible – to help thousands of businesses tick over until the worst it past.
And this comes down, in the first instance, to cash.
Some supports are already being put in place. The increase in sick pay and the decision that it can kick in immediately was – while potentially expensive – exactly the right thing to do on both public health and economic grounds.
Special government schemes, including one for working capital loans, will help.
But more will be needed to support the smaller players – the pubs, hotels, travel agents, restaurants, non-food retailers, tour operators and so on.
Managing this from a policy viewpoint is very difficult, not only because of the speed and scale of what has happened but also because of the vast number of businesses involved, most of which will have little or no past engagement with State agencies.
The small pub on the Ring of Kerry, the surf school, the tour guide and the bed and breakfast are not clients of Enterprise Ireland. Nor is your local restaurant or cinema.They are in sectors which mostly operate largely without State assistance – they are used to just getting on with it.
What the State can do is give these thousands of companies a temporary break – to stop taking their cash, because in many cases the cash will not be there.
Revenue Commissioners
The Revenue Commissioners statement yesterday in relation to SMEs is welcome. They are suspending late payment penalties for VAT due for January and February and for both February and March employer PAYE liabilities and suspending debt-enforcement activity until further notice.
These reliefs are likely to need to be extended. Councils should look at postponing commercial rates. Big utilities need to step forward and show flexibility.
Banks have promised to take a lenient approach and provide supports and need to be pressed by the regulator to deliver on this.
In time, other economic issues will appear. As the virus spreads, companies will have to deal with widescale absences . Falling global demand, on a massive though hopefully temporary scale and a global recession will hit demand here and affect jobs in many sectors.
Exchequers, including our own, will lurch into deficit and central banks will print money. A lot will hang on how long this lasts.
But the first problem is the cash crisis.
Thousands of companies in the domestic economy who have never looked for State support before and have not qualified for the kind of mollycoddling we have given to the multinationals will now need support.
We can all help a bit where we can. And deciding exactly how to channel support and to what sectors and companies will be difficult and costly. Resources, as the Taoiseach has said, are not limitless.
But the State needs to step in to try to deal as best it can with a rapidly developing cash crisis. Not much point insisting on a tax payment when it falls due at the end of next week if it means that the next one never arrives.
The Revenue’s move is welcome – and it is encouraging to see them moving so quickly.
More of this will be needed.