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Central Bank: Early signs of recovery are visible but Ireland's economic future remains uncertain

Real-time economic data suggests the worst of the decline was experienced in April.

Image: Sam Boal

SIGNS OF IMPROVEMENT in Ireland’s economic fortunes are visible but the trajectory of the recovery remains unclear.

That’s the message from the Central Bank in its latest Quarterly Economic Bulletin, which outlines the impact of the Covid-19 crisis on the Irish economy and the outlook, as it stands, for the next couple of years.

In the report, published this morning, the Central Bank says that economic data suggests the worst of the decline was experienced in April but that the economy has since risen above that low-point. 

However, the pandemic is set to shave at least 9% off Irish GDP this year.

Credit and debit card payments nearly returned to 2019 levels in June as restrictions were eased after a precipitous 30% drop in April.

Meanwhile, the unemployment rate fell from peaks of over 25% in April to 22.5% in June.

But although signs of growth in real-time economic data were noticeable in the second quarter of the year, as a result of the phased reopening of parts of the economy, activity remains significantly lower than before the pandemic.

Speaking ahead of the launch of the report, Director of Economics and Statistics at the Central Bank, Mark Cassidy said, “While there is considerable uncertainty about the outlook, the scenarios we present in this Bulletin point to a deep downturn in 2020, with a gradual recovery in coming years.

“The path ahead for the economy will depend on the path of the virus, which makes the strength of the recovery and the future impact on sectors uncertain.” 

Gradual recovery

The Central Bank expects to see further gradual recovery as the year progresses.

However, because of the uncertainty caused by the pandemic, researchers plotted the trajectory of Irish economic indicators across two scenarios, one severe and one moderate.

Outlining the latter scenario, in which the gradual reopening of the economy would allow for a rebound in activity in the short term, the Bank predicts that unemployment figures will fall by the end year from the peaks experienced in April.

The unemployment rate hit 25% of the total labour force during the worst weeks of the shutdown but it is forecast to fall to 14.5% by the end of the year. For context, Irish unemployment reached a 13-year low of just under 5% last year.

The Central Bank expects unemployment to drop to about 9% next year and 7% in 2022.

Gross Domestic Product, the total monetary value of all goods and services produced in the country, is expected to plummet in this scenario by 9% this year before recovering 5% in 2021 and 4.5% the following year.

A more severe scenario assumes that the lockdown period was not enough to contain the virus and that severe restrictions will have to be reimposed later in the year.

In this version of the future, unemployment will only fall to 16.5% this year with GDP declining by nearly 14%.

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In both scenarios, researchers assumed that some form of free trade agreement will be in place at the end of the current round of Brexit negotiation. If it is not, the Central Bank expects Irish growth levels to be even lower than in the medium to long term.

Economic gap

The latest Bulletin also highlights the uneven impact of the pandemic-related downturn across different regions.

According to the report, the impact has been greatest in areas where employment “has less ‘work from home’ potential and where sectors such as hospitality and tourism are particularly important”.

Analysing the county-by-county uptake in Live Register payments coupled with the government’s pandemic-related support schemes, the researchers were able to plot the geography of the unemployment crisis.

They found that counties with more workers in sectors such as retail, accommodation and food, construction and services”, were the worst affected.

Nationally, an average of 47% of the total labour force was availing of some kind of state support in the second quarter of the year. But counties Dublin and Cork had a much lower uptake of around 40%.

By way of comparison, in counties Kerry, Carlow, Louth and Wexford, closer to 60% of the total labour force was availing of some type of support during the second quarter of the year.

Cassidy, said that it was “reasonable to conclude” that the downturn could worsen the economic gap between rural and urban Ireland. 

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