The Covid-19 pandemic is a major shock to public health, the economy and the public finances. The Council’s latest Fiscal Assessment report develops three scenarios out to 2025, building on the Department’s SPU 2020 forecasts. https://www.fiscalcouncil.ie/fiscal-assessment-report-may-2020-2/

A “Central” scenario, building on official forecasts, where confinement measures ease as planned but with lasting impacts. A “Mild” scenario where conditions improve rapidly, with lasting damage minimised. And a “Severe” scenario with repeat lockdown and wider financial distress.

The appropriate fiscal stance for the coming years will depend on how the crisis evolves. This can be assessed in terms of three broad phases: (1) the immediate crisis; (2) the recovery period; and (3) the new normal that the economy finds itself in over the medium term.

Phase 1: The Government should limit negative health and income impacts and promote as quick a rebound as possible with direct spending measures and other supports. Support should be provided on a large-scale for as long as needed to avoid deepening the economic crisis.

Phase 2: Unemployment will be higher than it was pre-crisis. A sizeable fiscal stimulus would help support activity during the recovery phase. Borrowing to support weak demand would be an appropriate countercyclical approach for the government to manage the economy.

Phase 3: Post recovery, the debt burden could be near record highs. Some fiscal adjustment is likely to be required in Phase 3 to put the debt ratio on a downward path. Yet adjustments could come at a time when the economy would be closer to full employment and growing.