The economic cost of war is looming for the state, warns Paschal Donohoe
Russia’s war in Ukraine could put pressure on the government to continue supporting Irish businesses if the national economy takes a hit.
Finance Minister Paschal Donohoe warned on Monday that there will be a “cost” for Ireland, including “indirect ripple effects” from our trading partners, while the Governor of the Central Bank (CBI), Gabriel Makhlouf, said the bank may need to update its assessment of “potential size”. of the problem of insolvency” in view of the high uncertainty caused by the war.
The Economic and Social Research Institute (ESRI) will provide its first assessment of the impact of the war when it releases its quarterly economic commentary tomorrow, but Donohoe said there could be upward revisions” significant” inflation forecasts. Nonetheless, he insisted he was pushing ahead with an end-of-April date for Covid supports. “War will not be without cost to Ireland,” he told a conference organized by the CBI, ESRI and the European Investment Bank.
“In our case, it will be an economic cost. I recognize the additional pressure these rising costs are putting on households and businesses. »
Bankruptcies fell by a third last year from 2020, according to audit firm Deloitte, as government handouts kept many businesses afloat. ESRI estimates that the financial distress of small and medium-sized enterprises (SMEs) would be 72% higher without state wage subsidies.
There are now more than 8,000 SME loans under forbearance in Irish banks, while 25,000 businesses were dependent on wage subsidies at the start of this year.
More than 100,000 Irish SMEs have racked up €3.2 billion in tax debt under the government’s warehousing scheme.
Conor O’Toole, associate research professor at ESRI, told the conference that the national economy had taken the brunt of the pandemic and Brexit shocks, and that the war in Ukraine was already “rippling through” on Irish SMEs.
Maeve McElwee, director of employer relations at Ibec group of companies, told the same conference that rising inflation would increase the need for “some support over the next couple of years, especially for energy-intensive businesses”.
Mr Makhlouf called on the government and creditors to “be patient” and “to ensure that unnecessary liquidations of viable SMEs are avoided in the coming months”.
While Russia accounted for just 0.4% of Irish exports and 0.6% of imports in 2021, the war and successive rounds of international sanctions have impacted supplies and driven up prices for Russian and Ukrainian exports. , including oil, gas, wheat, metals, cooking oils and fertilizers.
In a letter to EU leaders ahead of a summit in Brussels this week, Mr Donohoe – who chairs the 19-member Eurogroup of finance ministers – said the crisis will impact growth, inflation, confidence, financial flows and the supply of goods. .
Even before Russia’s invasion of Ukraine, Irish officials wondered “if there was too much optimism” about energy prices, according to the minutes of a January 25 meeting of the Central Bank Commission.
The effects of the invasion are already starting to show in the sentiment indicators.