- Economic landscape fundamentally changed in Ireland and across the globe;
- Irish GDP to fall by 10.5 per cent this year;
- Labour market bears the brunt of the economic shock, going from full employment to a peak unemployment rate of 22 per cent in the current quarter;
- Recovery over the second half rests on successful virus containment;
- General government deficit of €23 billion (7.4 per cent of GDP) projected this year;
- Modified Domestic Demand, perhaps the best indicator of domestic economic conditions, is projected to fall by 15 per cent this year;
- Recovery in second half of year to gain momentum next year with economic growth of 6 per cent;
- Employment to grow in 2021, with numbers out of work to fall below 10 per cent;
- Debt-to-GDP ratio projected to rise to 69 per cent;
- Difficult journey ahead but Ireland faces it from position of strength.
The Minister for Finance and for Public Expenditure and Reform, Paschal Donohoe T.D., today (Tuesday) published the Government’s Stability Programme Update 2020
(SPU). The SPU sets out a macroeconomic and fiscal scenario for the period 2020-2021 which incorporates the impact of the Covid-19 pandemic. The macroeconomic forecasts underpinning the SPU were endorsed by the Irish Fiscal Advisory Council on 10th April.
Commenting on the figures, Minister Donohoe said:
The Irish economic landscape, in common with elsewhere, has been turned on its head in recent weeks. The necessary restrictions to limit the transmission of the Covid-19 virus have resulted in a severe recession and unprecedented levels of unemployment.
My Department is projecting that GDP will fall by 10.5 per cent this year, with measures taken to combat Covid19 here and internationally resulting in a sharp contraction of both domestic and external demand. However, the gradual recovery assumed in the second half of the year is projected to gain momentum next year, with the economy growing by 6 per cent and unemployment falling to below 10 per cent next year. It is expected that economic activity will reach its pre-crisis level in 2022.
The labour market is bearing the brunt of the recession, moving from effectively full-employment in the early part of the year to exceptionally high levels of unemployment now and in the coming weeks. Unemployment of 22 per cent projected for the second quarter. We anticipate that total employment will fall by 9.3 per cent this year, with approximately 220,000 jobs being lost. Next year, employment is expected to grow by 5½ per cent (115,000 jobs), reducing the unemployment rate to below 10 per cent.
While the economic deterioration has been unprecedented in terms of speed and scale, so has the response from Government. This has been possible because of the prudent policies implemented in recent years. There is no doubt that, along with the rest of the world, Ireland is on a difficult road. However, we face into this journey from a position of strength. We can and we will rebuild our economy, continue to provide for society, get our people back to work and keep them safe while doing so.
Minister Donohoe added:
This year we will run a deficit of around 7½ per cent of GDP or €23 billion, very much in line with our euro area Member States. This reflects both the scale of the expenditure measures implemented by Government as well as the decline in taxation revenue arising from the recession. The SPU allows for an increase in expenditure of €8 billion on previously announced figures to account for measures taken in response to the Covid-19 crisis and also to fund income supports for our people. In particular, almost €2 billion is to be provided to support the Health service to boost capacity, purchase PPE and hire new staff’.
The Government is providing additional healthcare capacity to minimise loss-of-life, to protect household incomes, and to help vulnerable firms in our economy bridge-the-gap while containment measures are in place. Running a deficit in a recession is appropriate; this is how we support the economy in difficult times. To chart our way out of this unprecedented situation, an economic recovery plan will be published that will lay out the necessary measures to restore full employment and outline the steps needed to get our country back on track in the period ahead.
Notes to Editors
1. The Minister for Finance will publish the draft SPU on Tuesday 21st April with a Dail Statement to follow on Thursday 23rd April.
2. The Stability Programme Update is a legal requirement: all Member States must submit to the European Council and commission by end-April each year.
3. Normally, the Stability Programme Update would cover the current year and the following four years; on this occasion, the European Commission provided guidance to the effect that only the current year could be considered. The Department incorporates figures for this year and next.
4. The scenario underpinning the outlook for the Irish economy this year and next is one in which containment measures are assumed to remain in place for three months, resulting in a very sharp contraction in the latter weeks of the first quarter and most of the second quarter 2020. Thereafter, a very gradual recovery commencing in the third quarter is assumed; the pick-up is gradual, reflecting the fact that vaccination is not assumed to become available before next year.
5. It should be noted that in more severe scenarios where containment measures are extended into the third or fourth quarters of this year, instead of a projected fall of 10½ per cent, GDP would be expected to decline by 13¾ and 15¼ per cent, respectively.
6. The projections are also contingent upon the EU and UK reaching a free trade agreement at the end of the transition period in December 2020.