Irish economy to recover quite strongly from restrictions but unemployment unlikely to return to pre-pandemic levels until 2023 at the earliest
In light of the current level-5 restrictions, we have revised down our 2021 forecasts from the 2020 Winter Commentary. We now assume that the lockdown measures that commenced on the 30 December 2020 will last until at least the 5 April 2021 and that there will be a gradual easing of restrictions thereafter. We also assume 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. We also outline our first set of forecasts for 2022 with output expected to increase by 5.2 per cent.
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.
Government expenditure is expected to remain elevated in 2021 and 2022. As a result, we expect a general Government balance of -4.7 per cent of GDP in 2021 before falling to -1.9 per cent of GDP in 2022. In a Box to the Commentary, McQuinn and Allen-Coghlan examine the implications of an alternative measure of debt sustainability; the ratio of real interest payments-to-GDP. The results based on this measure suggest the Exchequer would have additional room for fiscal expansion over and above that suggested by the traditional debt-to-GDP metric.
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.”
Commenting on the report, author Conor O’Toole of the ESRI stated:
“The recovery of the economy in 2021 is tightly linked to the roll-out of the vaccination programme which will allow easing of restrictions on a broad-base. As households’ savings have increased during the pandemic, an easing of public health measures may encourage households to spend more readily and support the recovery.”