As a result of Russia’s war in Ukraine, “significant” price increases and further bankruptcies are to be expected.
Finance Minister Paschal Donohoe said energy prices and the “speed and strength” of Ireland’s recovery would push the cost of living even higher this year.
Central Bank Governor Gabriel Makhlouf warned of higher food prices and implications for “the potential scale of the bankruptcy problem” amid the “increased uncertainty” caused by the war.
“The war will not come without a cost to Ireland,” Mr Donohoe said at an event jointly organized by the Central Bank of Ireland, the Economic and Social Research Institute (ESRI) and the European Investment Bank.
“In our case, this will be an economic cost. Although our direct trading links with Russia are limited, the Irish economy remains vulnerable to indirect spillovers.
“Due to the energy price spikes since the budget and, more recently, the conflict in Ukraine, our current inflation forecasts could indeed point significantly higher.”
Irish prices rose 5.7 percent in February, a record in almost 21 years, and are expected to rise further in the coming months.
The government will update its economic forecast in April, while ESRI will release new growth and inflation forecasts on Tuesday.
Mr Makhlouf said the war in Ukraine was “an exacerbating factor” for inflation, particularly for energy prices and goods used in food production.
“From the perspective of the Irish economy, the tragedy unfolding in Ukraine can be seen as a compounding factor that will exacerbate many of the difficulties that have already been causing inflationary pressures in recent months, particularly in relation to energy supply prices and the availability of other commodities , including inputs for food production,” Mr Makhlouf said at the same event on Monday.
“My main appeal today to policymakers and creditors of all stripes is to be patient and ensure that unnecessary liquidations of viable SMEs are avoided in the coming months.”
EU foreign and defense ministers on Monday discussed a fifth round of sanctions, including a possible ban on Russian oil exports, which Foreign Secretary Simon Coveney said Ireland supports.
While Ireland’s trade with Russia and Ukraine is relatively small, agri-food companies depend on Russia for 20 percent worth of fertilizer imports, while Russia is a major market for Irish whiskey.
Russian metals giant Rusal owns Europe’s largest alumina refinery in Limerick, which has come under renewed pressure following Australia’s recent Russian export ban.
Many Ireland-based aircraft leasing companies are struggling to get assets back from Russia, while global commodity markets have seen wild swings in energy, wheat and metals prices since Russia’s invasion of Ukraine on February 24.
The EU says governments can subsidize companies operating directly in the Russian and Ukrainian markets, including heavily energy-dependent companies.
Business bankruptcies in Ireland fell during the pandemic as companies took advantage of a range of government support. More than 100,000 companies have “saved” – or deferred – a total of €3.2 billion in tax debts that have to be repaid to the state.
Mr Makhlouf said a key issue is “how best to steer distressed but viable businesses towards restructuring opportunities and unviable businesses towards liquidation”.
https://www.independent.ie/business/irish/war-in-ukraine-will-cost-ireland-says-finance-minister-41470055.html War in Ukraine will ‘cost’ Ireland, Finance Minister says