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Workers in a Chinese glasses factory wearing face masks

Workers in a Chinese glasses factory wearing face masks

AFP via Getty Images

Workers in a Chinese glasses factory wearing face masks

The coronavirus outbreak is set to lead to shortages of goods such as computers, phones, pharmaceuticals and cars because of the disruption to the global supply chain, Cabinet ministers have been told.

A confidential memo prepared for ministers this week warns that the unprecedented nature of the global Covid-19 outbreak makes it "simply not possible" to define a worst-case scenario for the Irish economy.

It states that the decline in production in China has already "transmitted rapidly" around the world given its key role in global supply chains.

China is a key producer of intermediate goods, particularly those in computers, phones, pharmaceuticals and cars.

Ministers were told the impact of the slowdown in China is already affecting the production of cars in Germany and Italy.

"A slowdown in the Chinese economy will have a major impact elsewhere," the memo states.

The outbreak is described as a supply-side shock, with disruption to supply chains leading to possible factory closures, quarantined workers, inspection delays, transport issues and more customs controls.

Fragile

It also identifies a "broader contagion scenario" which would take 1.5 percentage points off the growth rate, but says this is not the worst-case scenario.

"Because this is an unprecedented event, it is simply not possible to define a 'worst case'," the memo adds.

The impact could also compound current difficulties in the eurozone economy and would be a "shock" to the already "extremely fragile" global economy, according to the memo.

Ministers were also told that several large global firms, including some which have significant operations in Ireland, "have already announced that trading conditions have deteriorated and that profit expectations for this year are being revised downwards".

Ministers were told consumers and businesses in many parts of the world are likely to take a more cautious approach than would otherwise have been the case as a result of the outbreak.

While it says that "Ireland is less directly vulnerable to a slowdown in the Chinese economy" it adds that up to €80bn in annual contract manufacturing exports could potentially be adversely affected.

Contract manufacturing exports are goods recorded as exports from Ireland, but produced in, and exported from, other countries, notably China.

"If the lost output and sales are not recovered by year end, it could also affect corporation tax receipts," the briefing states.