The Irish economy will shrink by 2.5% this year, with the domestic economy falling by 6.5% and the unemployment rate averaging just below 16%, according to forecasts by the Department of Finance.
In its economic projections published to assist in planning for Budget 2021, the Minister for Finance, Paschal Donohoe released forecasts that projected GDP will fall by 2.5% in 2020 and to grow by only 1.4% in 2021. Employment is set to fall by 13.8% this year this with an annual average unemployment rate of just under 16 per cent this year, and 10.7 per cent in 2021. The forecasts are based on a disorderly Brexit and on no widespread Covid-19 vaccine being available.
It states the impact of Covid-19 on GDP is less than previously expected, mainly due to the resilience of Multi-National Company (MNC)-dominated exports. However, the hit on the domestic economy has been severe, with a drop of 6.5%.
According to Mr Donohoe: "“The macroeconomic projections are based on two key assumptions: firstly, from the beginning of next year, bilateral trade between the UK and the EU will be on World Trade Organisation terms and secondly, a widespread vaccination for Covid-19 vaccine will not be available.
“Under this scenario, my Department is projecting that GDP will fall by 2.5 per cent this year. While this headline figure is less severe than envisaged in the spring, it reflects the contribution to GDP from parts of the multinational sector. Other – more relevant – indicators confirm a severe economic fall-out from the pandemic."
He said the assumption of a disorderly end to the Brexit transition period meant , there will likely be significant disruption to trade next year. "GDP is projected to grow by 1.4 per cent, around three percentage points lower than it would otherwise be if a Free Trade Agreement was put in place," he stated.
“While the economic decline is expected to be less severe in 2020 than previously envisaged there is no doubt that we have experienced a significant shock since March and the onset of Covid 19. On the plus side, however, it is important to note that employment is expected to grow by around 7% or 145,000 jobs next year, having a very real impact on the economy and society more generally."
“The pandemic, however, will result, in all likelihood, in some level of permanent damage to the economy – so-called ‘scarring effects. However, policy can help to minimise these. The forthcoming Budget will continue to provide counter-cyclical support to the economy and provide details on the Recovery Fund which is provided for in the Programme for Government.”
