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'Turbocharged by Covid': Savings by Irish households jump to nearly €10 billion

The business lobbying group forecasts a drop in Irish GDP by 2.6% in 2020.

IRISH HOUSEHOLDS HAVE saved nearly €10 billion in the first seven months of this year which Ibec says may represent a major economic stimulus opportunity for the government ahead of Budget 2021.

The business lobby group has also forecast Irish Gross Domestic Product (GDP) to fall by 2.6% in 2020 as a result of the pandemic-related economic crisis, borne out in recent data, which shows that domestic demand fell by one fifth in Quarter 2 while exports proved more robust than anywhere else in the EU.

In its quarterly economic outlook published this morning, Ibec said that an “inability to spend” meant that households saved €9.8 billion in the first seven months of 2020, holding €20 billion more in Irish banks than they owe in debt.

The lobbying group says these resources and the country’s ongoing export and public investment strength are the key difference between this recession and the last in 2008. 

“Over recent years we have drawn attention to the pattern of Irish households de-leveraging at a rapid pace following the financial crisis. This, in part, was driven by economic scarring and debt aversion, but also the unaffordable pricing of common assets such as housing,” the report says. 

“This saving behaviour has been turbocharged by Covid. In the first seven months of 2020 households saved €9.8 billion. This is €5.5 billion more than in 2019 and €7.3 billion more than during the corresponding period in 2018.”

These Covid savings may represent “a major stimulus opportunity” if the Government can encourage households to spend or invest with confidence, Ibec says.

The group says that Ireland is currently experiencing a K-shaped recovery, with a growing gap between businesses and households whose economic prospects have proven resilient during the pandemic  and those who face a significant decline in income and opportunity.

The lobby group warned that the rising risk of a no-trade deal Brexit may also accentuate this gap between sectors, firms, and households.

Figures published by the Department of Finance Friday revealed the government ran a €9.4 billion deficit for the first three quarters of the year, but that tax receipts have remained strong.

The figures were published less than two weeks before the upcoming Budget, which Finance Minister Paschal Donohoe has said will be based on the assumption of a no-trade deal Brexit.

Minister for Public Expenditure Michael McGrath said Friday the government was anticipating that “a significant portion” of the Covid-19 related spending from this year would be incurred again next year.

This was echoed by Donohoe who said that “what is very different” about next year’s finances is that the government will have to plan for the exceptional expenditure from this year “carrying forward” into next year. 

“Can I give you an impact on what that will mean for our deficit for next year? At this moment I truthfully can’t,” Donohoe said. 

Ibec said the key to Budget 2021 is not a challenge of a society with too little resources, it is a challenge of finding the right channels to get those resources moving, and people back to work.

Ibec chief economist, Gerard Brady, said the Budget must see the Government continue to make the right decisions, by introducing targeted measures to protect those most impacted sectors and workers from the twin threats of Covid and Brexit.

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