The OECD has said that the Irish economy is set to contract strongly in the first half of this year due to the Covid-19 lockdown as it urged the Government to be prepared to extend existing support measures if required.
In its latest economic outlook, the Organisation for Economic Cooperation and Development said that GDP here will fall by 6.8% in 2020 and then recover by 4.8% in 2021.
But if a second wave of contagion hits this year, the Irish economy could contract by 8.7% with almost no recovery in 2021.
It has also predicted that unemployment average between 10.8% and 12.3% this year.
The OECD said that despite supportive economic policies cushioning workers and businesses, depressed confidence and impaired households and business balance sheets will hold back the recovery as the economy reopens.
The Paris-based think tank said the Government should remain prepared to extend existing support measures if required, adding that policies which provide additional liquidity to viable small and medium sized businesses may be needed.
“Loan guarantees and public equity injections for viable for liquidity-constrained firms should be undertaken as needed,” it added.
It said an increase in barriers to trade between the UK and the European Union as a result of Brexit is also a major risk facing the country as the UK remains a key trading partner.
The OECD also warned that the legacy of the financial crisis makes the Irish economy “more vulnerable”, adding that high household debt, weak bank profitability and high levels of government debt remained key risks.
But on the plus side, it noted that pharmaceutical and medical device industries located here may experience a boom during any recovery.
The OECD also forecast that the global economy would contract 6% this year before bouncing back with 5.2% growth in 2021 – providing the Covid-19 outbreak is kept under control.
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