Central Bank revises upwards economic growth forecast
The Central Bank has revised upwards its forecast for economic growth in the economy this year in its latest quarterly bulletin.
It says longer pandemic restrictions have slowed the domestic economy but this will be offset by greater demand for exports.
It predicts that when measured by gross domestic product, the economy will grow by 5.9% this year, over 2% more than it predicted at the start of the year.
Its forecast for Modified Domestic Demand, which attempts to strip out the impact of multinationals, is actually down slightly to 2.8% but this will be offset by stronger demand for our exports from abroad, the Bank believes.
Overall, it calculates the direct and indirect cost to the government of tackling Covid-19 this year and last will come to €32.2 billion.
Of the extra €15.7bn squirreled away in savings over the past year, the Bank believes about €5bn or so will make its way back into spending, but of that some will be spent on imports and foreign holidays so not all of it will boost the domestic economy.
The Bank has pencilled in a forecast for 20,000 housing units to be completed this year and 23,000 in 2022.
It notes this is still well below estimates of demand and is dependent on construction returning later this month.
Its estimate for the €32.2bn cost of Covid-19 is broken down into €16.4bn spent directly in 2020 on income supports and health expenditure and €3.2 billion through various tax concession schemes.
This year, it estimates that direct expenditure will total €11.9 billion while €700 m will be through tax schemes.
There is also an additional €5bn set aside as indirect support for the company credit guarantee scheme but it’s not possible yet to calculate its final cost.
It expects the Covid-adjusted rate of unemployment, which is currently just over 24%, to decline sharply when the economy reopens later in the year.
However, it also predicts that the underlying rate of unemployment will increase from 6.6% this year to 8.1% next year as not all who move off the PUP will return to work.
It calculates that by the end of next year, there could be an additional 80-100,000 unemployed compared to the labour market pre-pandemic.
Mark Cassidy, the Central Bank’s Director for Economics and Statistics, said the average and aggregate figures published “don’t really give a sense of hardship and financial strain faced by many businesses and households”.
Speaking on RTÉ’s Morning Ireland, he said some analysis has been published that shows the costs of the crisis has “certainly not” been borne equally across country.
He said sectors with face-to-face contact have been the worst affected, including transport, parts of retail, and food and hospitality.
“The job losses that we have seen have been disproportionately concentrated among younger and part-time workers, also lower paid workers, and indeed female workers have been also more affected – not just through those job losses but there is also evidence females bear the larger burden from working from home and school closures.
“It would be unfortunate if that has any implication for the gains that women have achieved in recent years,” he said.
Mr Cassidy said the situation regarding unemployment at the moment is “very severe”.
While the majority of those on the PUP will return to work once restrictions are lifted, he said the delayed impact of more than a year of closures in some sectors will likely lead to more job losses.
He said that if the vaccination rollout goes broadly to plan, he thinks there will be a “strong rebound” in the second half of this year, picking up speed as we move into 2022.
“The longer it takes to vaccinate the entire population and for the economy to open up, the slower economic growth will be this year,” Mr Cassidy said.
“The recovery will be delayed, the return towards full employment will be delayed, but in addition to that, there would also be further economic scarring, including the potential for longer term unemployment and also a permanent loss to potential outputs, so I think the duration of the crisis is an important factor at the moment,” he said.
Mr Cassidy said that prior to the emergence of Covid-19, they were estimating around 26,000 new homes built this year.
The current estimate is now around 20,000, he said.
He said this will have a significant effect and will worsen some of the problems regarding supply and the availability of housing.