(Bloomberg) — Ireland’s government is set to boost spending to counter the dual threats of Brexit and the pandemic, as new restrictions threaten to derail a nascent economic recovery.
Finance Minister Paschal Donohoe will lay out the 2021 budget from about 1 p.m. in Dublin, a week after the coalition government moved the nation to a Level 3 lockdown, meaning most bars, restaurants and hotels are closed again. Among the measures being floated are a 5 billion-euro ($5.9 billion) fund to deal with the virus and Brexit, more health spending and a cut in sales tax for the hospitality industry.
Donohoe’s strategy contrasts with Ireland’s last experience of economic crisis a decade ago, when the government slashed spending and raised taxes to win back the confidence of international lenders. The coronavirus response is one being echoed across Europe as countries try to protect businesses and jobs amid a resurgence of cases.
“Like others, the Irish government will eventually face the difficult task reducing the size of government spending,” Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin, said. “But with large immediate threats to the Irish economy, this is a time to keep the foot on the fiscal accelerator.”
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The domestic economy is set to shrink 6.5% this year, according to the finance ministry. Nonetheless, the wider economy is protected by the slew of U.S. companies which use Dublin as their European headquarters. Overall, GDP is likely to contract just 2.5% this year, the ministry said.
Still, Ireland faces threats outside the virus, mainly the prospect of the U.K. crashing out of the European Union without a trade deal. That would cut Irish economic growth by half next year, according to the ESRI, a Dublin-based think tank.
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