Irish economy to recover quite strongly from restrictions

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The Economic and Social Research Institute has lowered its forecasts for growth in the economy this year, due to ongoing Level 5 pandemic restrictions.

In it’s quarterly report, the ESRI stated on assumption, that the vaccination programme will facilitate the broad relaxation of public health restrictions in the second half of 2021 and that there will not be another full Level 5 lockdown towards the end of the year. Under these assumptions, we expect Irish GDP to increase by 4.4 per cent in the present year. They also outline their first set of forecasts for 2022 with output expected to increase by 5.2 per cent.

Unemployment is going to remain a significant problem for the next two years. The ESRI went on to state “the average monthly unemployment rate in 2020 was 18.7 per cent. We expect the unemployment rate to average around 25 per cent in Q1 2021 and that it will be approximately 10 per cent by the end of the current year. Unemployment is set to fall further into 2022 and will average just over 7 per cent for the year. However, we do not expect to see the unemployment rate fall back to pre-COVID rates until late 2023 at the earliest”.

It also forecasts that housing completions this year will tumble to 15,000, a 25% drop on last year. It describes housing supply as one of the long-term economic costs of Covid.

Commenting on the report, author Kieran McQuinn of the ESRI stated: “We expect the Irish economy to recover quite strongly from the current set of public health restrictions in the second half of the current year and into 2022. However, unemployment is unlikely to fall back to its pre-pandemic levels until 2023 at the earliest.”

Another very interesting point in the report is that the value of goods Imports into Ireland from Great Britain(UK excluding NI) decreased by €906m (-65%) to €497m in January 2021 compared with January 2020. In addition the value of goods Exports to Great Britain decreased by €149m (-14%) in January 2021 to €946m when compared with January 2020.

Other issues covered in the report is the Covid-19 crisis has seen a marked reduction in corporate insolvencies internationally (IMF). This has been the case in Ireland also. Company insolvencies may become an issue as supports are wound back.

On the other hand the ESRI report also highlights that the increase in savings in Ireland during the pandemic was the highest in the euro area. The ESRI believes that some of this will come back into the economy once restrictions are lifted.