Significant disparity in economic impact of the Global Financial Crisis and COVID-19 in the Irish economy

The QEC Research Note ‘Comparing two recessions in Ireland: Global Financial Crisis vs COVID-19’ compares the evolution of key economic indicators across the two most recent recessions in the Irish economy. We compare and contrast three types of indicators, hard indicators which measure realised outcomes, soft indicators which measure sentiments and expectations and policy responses.

Our analysis indicates that the scale of the negative economic shock is much more severe during the ongoing COVID-19 induced crisis.  Indicatively, hard indicators such as retail sales and unemployment experienced unprecedented negative fallout during the initial lockdown while consumer and business sentiment also plummeted. However, thus far it seems that the Irish economy bounces back more rapidly than during the GFC where the downward movement was more gradual and prolonged.

One of the most significant differences between the two crises has been the policy response at both a national and European level. National fiscal and Eurozone monetary policies (ECB) have coordinated in a timely manner to support the Irish and Eurozone economies. While the GFC in Ireland was characterized by years of austerity in which government expenditure was severely cut back, so far during the COVID-19 crisis the government has implemented large spending increases. This has been facilitated by accommodative monetary policy from the ECB which has created extra fiscal space and kept Irish borrowing costs at record low levels.              

Commenting on the work, author Petros Varthalitis of the ESRI stated:

“The scale and the rapidity of the negative impact are much more severe during the current crisis; while the recovery seems much swifter than that of the GFC. These differences can be attributed to the nature of the two shocks but also to the significant differences in how policymakers have responded to both crises. The Irish Government immediately launched a large fiscal stimulus package to support the Irish economy. At the same time, ECB through its accommodative monetary policy has facilitated this national fiscal expansion.”