The Covid-19 health crisis will dwarf the 2008 recession
An eerie feeling is widely evident, where people are gripped by fear as economic activity slowly grinds to a halt. Twelve years have passed since the onset of the last recession, when people realised that their lives would be changed dramatically.
Now, people are realising that not only do we have a health crisis, which in itself is significant, but the financial effects of the pandemic will destroy their businesses together with their personal prosperity.
Unlike the 2008 crash, the pending financial hit caused by the Covid-19 health crisis will dwarf the 2008 recession and could leave our society permanently damaged for many years to come.
One could compare the Covid-19 pandemic to the Tuberculosis (TB) epidemic that became widespread in Ireland in the late 1940s and early 1950s, as it too created a silent fear together with an era of many uncertainties.
The Irish economy at that time was much weaker than it is today. However, the TB outbreak made a then weak economy even weaker still, with a virtually non-existent social welfare net.
This resulted in many people with active TB knowingly trying to hide the symptoms in order to sustain their income and avoid poverty. Consequently, thousands of people died due to lack of control in tackling community transmission.
We are heading into a scary and uncertain future, as companies lurch more and more into insolvency — of which some will be unable to trade out of. I recently spoke with the proprietors of two cafes who explained that they had closed and would probably never reopen again.
Moreover, unlike the 2008 recession, the Covid-19 pandemic’s effects will be widespread and sustained. Among these effects:
- It will send massive shockwaves throughout our economy, as unemployment already exceeds the 500,000 mark, which is way ahead of the 2008 crisis;
- It will cause a very severe drop in economic activity, resulting in cashflow difficulties and many businesses becoming insolvent, especially in catering, travel and tourism;
- People unable to go to work because of lockdown and/or out of fear will result in a breakdown of value chains in the retail sector. This will create a major blow to high street shopping but will increase the online platform.
- The effect on the global economy will have a knock-on effect in Ireland, where growth is already getting weaker by the day.
From my own perspective, the recession we are about to head into will obviously have an impact on my client base.
However, I am the eternal optimist and I will survive. As I often say, when recession hits, my practice does extremely well and when recession rescinds my practice does okay.
By introducing the Covid-19 subsidy scheme, the Revenue Commissioners have thrown a lifeline to companies and sole traders alike, which will help them greatly while the ongoing crisis continues.
In addition, Revenue is prepared to consider a period of forbearance as regards payments once the returns are kept up to date under all relevant tax heads. The fast action of the Revenue Commissioners is to be commended.
Finally, in my opinion, as we emerge from the current crisis, even though the price pressure will be extremely high, we will be more united. As they say in a time of recession, the requirement is for cooperation, not isolation.
+ PJ Lynch (pictured), principal of PJ Lynch & Co, is a specialist insolvency practitioner based in Westland Square, D2.
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