Irish economy to record double digit growth as exports surge
The Irish economy is expected to record substantial growth in 2021 as public health measures are lifted. Assuming the continued easing of public restrictions and vaccine delivery rolls out as planned, we expect GDP to increase growth by just over 11 per cent in the present year. The strong performance of the Irish export sector is driving much of this growth. Exports grew by 17 per cent in the first quarter of 2021 year-on-year and, while trade disruptions due to Brexit are likely to impact specific sectors, overall exports are still expected to grow 13.3 per cent for the year as a whole. Domestic demand is also expected to rebound strongly. As the economy reopens, we expect consumption to grow by 7.5 per cent in the present year. Like consumption, investment is expected to grow significantly throughout the latter half of 2021 as economic activity resumes, growing by 5.8 per cent overall.
In terms of the labour market, the pandemic adjusted unemployment rate decreased from a high of 30 per cent in April 2020 to 22.4 per cent in April 2021. We expect unemployment to fall to 9 per cent by the end of 2021 as economic activity resumes and to average 7.1 per cent in 2022.
In a box to the Commentary Bergin, Garcia-Rodriguez and McQuinn quantify the cost in output terms to the Irish economy of COVID-19. Between 2020 and 2021, they estimate that the cost is approximately €24bn in terms of lost output, however, by 2022, the economy is set to be back to where it would have been if the pandemic had never occurred.
In another box McQuinn outlines the potential for borrowing by the Irish Government over the medium-term under plausible and conservative assumptions. The research argues that between €5bn to €7bn per annum could be raised in a sustainable manner by the Government under such a policy.
Commenting on the report, author Kieran McQuinn of the ESRI stated:
“The Irish economy is set to experience substantial growth rates in both 2021 and 2022 as it emerges from the pandemic. However, COVID-19 has had a significant impact in terms of the loss of output.”
Commenting on the report, author Conor O’Toole of the ESRI stated:
“If public health measures continue to be eased, the Irish economy will grow very strongly this year. While the export performance may tip the economy into double digit growth, domestic demand is also expected to rebound strongly with household spending and investment recovering.”