- GDP is forecast to expand by 4½ per cent this year and 5 per cent next year.
- Modified Domestic Demand (MDD), a more useful indicator of domestic economic conditions, is projected to grow by 2½ per cent this year and 7½ per cent next year.
- The labour market has borne the brunt of the pandemic with the unemployment rate projected to average 16¼ per cent this year and 8¼ per cent next year.
- The level of employment is projected to increase by around 80,000 this year and 225,000 jobs next year, but will still remain below its pre-crisis peak until 2023.
- The fiscal forecasts are prepared on the basis of existing policies.
- After recording a General Government Deficit of 5.0 per cent of GDP last year, a further deficit of 4.7 per cent of GDP is in prospect for this year before falling to 2.8 per cent of GDP next year.
- Debt-to-GNI* ratio projected to rise to 112 per cent this year but is set to decline to 107 per cent next year.
The Minister for Finance, Paschal Donohoe TD, today (Friday) submitted the Government’s Stability Programme Update for 2021 to the European Council and European Commission in accordance with the legal guidelines. This document sets out the Department of Finance’s macroeconomic and fiscal forecasts for the period 2021-2025.
Commenting on the figures, Minister Donohoe said: ‘The speed at which the economy can recover will depend on the success of our vaccination programme. Indeed, vaccine policy is economic policy and our vaccination programme will be the touchstone for the domestic recovery. As announced yesterday, the acceleration of the vaccination programme along with the efforts of the Irish public has allowed for an easing of public health restrictions over the coming months. This will allow for a substantive and sustainable recovery to begin’.
“The relationship between economic activity and public health restrictions has weakened over each successive wave of the pandemic. The adaptability and innovation shown by businesses and consumers is borne out by the high frequency data, for instance retail sales and VAT data, which shows that the economic impact of the current set of restrictions is less severe than last year. This provides further grounds for optimism for a solid recovery once the containment measures are eased over the coming months.
“My Department is projecting that Modified Domestic Demand – the best indicator of economic trends – will increase by 2½ per cent this year, accelerating to 7½ per cent next year, as pent-up consumer and business demand is released.
“The economic fall-out from the pandemic is most evident in the labour market. The unemployment rate reached just above 24 per cent in the first quarter of this year and is expected to fall to 11¼ per cent in the fourth quarter and 7¼ per cent in the final quarter of next year as the economy is fully re-opened.
“On the fiscal front, the Government has used the full suite of budgetary tools available to support workers and firms and to cushion the impact of the pandemic. With a value of almost €38 billion, or nearly a fifth of GNI*, the budgetary support provided by Government has been extraordinary. We are only in a position to do this because of the sensible and sustainable management of the public finances over recent years. While the response has been both appropriate a/nd necessary, the cost continues to be significant. Last year, a general government deficit of €18½ billion, or 5 per cent of GDP, was recorded.”
On the public finances, Minister Donohoe said: ‘We are projecting an improvement in the public finances this year with a deficit of 4.7 per cent of GDP in prospect. This is based on existing Government policies but there will be no ‘cliff-edge’ to the most important supports.
“This year’s deficit will bring our overall debt levels to just under €240 billion or almost 112 per cent of GNI*. Let me put this another way: our public debt is approaching a quarter of a trillion euros. Once the worst of the pandemic has passed, it will be necessary to address this by eliminating the deficit over time in a way that balances supporting the economy with continued fiscal sustainability. That is what the Government will do. Together, we will overcome the pandemic, rebuild our economy and return our people to work.”
Notes to Editors:
- The Stability Programme Update is a legal requirement: all Member States must submit to the European Council and Commission by end-April each year.
- The document is prepared on the basis of the policy position set out in Budget 2021, and includes all announced policy measures. It does not include any additional measures.
- In a more severe scenario where current, stringent restrictions need to remain in place for a prolonged period, GDP growth this year would be almost 1 percentage point lower than the main baseline projection, and would be 2½ percentage points lower next year. As a result, by the end of next year, the Irish economy would be approximately 4½ per cent smaller than it would under the baseline forecasts.
- The macroeconomic analysis and forecasts contained in this document are based on data available to end-March 2021. The fiscal projections are based on data to mid-April. The macroeconomic forecasts were endorsed by IFACon 7th April. The presentation provided to IFAC is available on the Department of Finance website. https://www.gov.ie/en/publication/5d363-spu-2021-presentation-to-ifac-1-april-2021/
- The unemployment rate for 2021 is based on the CSO Covid-adjusted unemployment rate which adds all PUP recipients to the standard unemployment rate. For 2022 onwards, the standard and Covid-adjusted unemployment rates are assumed to converge.
Deborah Sweeney, Special Advisor, Department of Finance — 086 858 6878
Aidan Murphy, Press Officer, Department of Finance – 085 886 6667