The Irish economy will fall into recession this year, shrinking by as much as 7.1 per cent as a result of the coronavirus crisis, the Economic and Social Research Institute (ESRI) has predicted.

Up to 350,000 people are also expected to lose their jobs, a sixth of the working population.

In its latest quarterly assessment, the think tank said the Covid-19 pandemic was the greatest threat the Irish economy had faced since the financial crisis.

Assuming the shutdown measures stay in place for a 12-week period and the economy recovers afterwards, the institute said it expected the economy to contract by 7.1 per cent in 2020.

“Consumption, investment and net trade would all fall sharply. Households would cut spending, firms would cancel or postpone investment, and external demand for Irish goods and services will fall,” it said.

The ESRI warned the labour market was set to face the largest shock in a single quarter in living memory – with the unemployment rate soaring to 18 per cent in the second quarter of this year, up from 4.8 per cent – almost full employment - in the previous quarter.

The ESRI said its latest commentary provided a “scenario analysis” which attempted to assess the economic impact of the current restrictions and closures.

Instead of running a budget surplus, as had been expected, the Government is now expected to face a budget deficit of 4.3 per cent (€12.7bn) due to the significant fall in tax revenues to the exchequer.

The ESRI said the deterioration in the public finances also reflected the significant increase in spending the Government had been forced to implement to support workers who have lost their jobs, assist businesses facing declines in revenue and provide additional health expenditure needed to combat the virus.

Initial estimates put this package at up to €15 billion.

Unfolding rapidly

The think tank also warned that this scenario may turn out to be “too benign” if the current situation worsens. “As events are unfolding rapidly we will revisit these scenarios more frequently than our traditional release pattern.”

The ESRI had been expecting growth of roughly 3 per cent this year on the back of 5.5 per cent growth last year.

“The swiftness of the economic deterioration is unprecedented in modern times, and in many respects exceeds that of the financial crisis,” it said.

“The response of authorities both domestically and internationally to the spread of the virus, while absolutely necessary from a general health perspective, will result in millions of jobs being lost globally in the coming weeks and months and a sharp contraction in global economic activity,” it said.

“The limitations on international travel and the effective sealing-off of entire countries will have profound implications for cross-country trade and commerce.”