recession ireland

'A notable shock': Pandemic impact on Ireland's domestic economy worse than most other EU countries, says ESRI

Arts, entertainment and construction among the worst-affected domestic sectors.

IRELAND’S DOMESTIC ECONOMY has felt the shock of the pandemic to a greater extent than most of its European peers, according to the Economic and Social Research Institute’s (ESRI) latest quarterly economic commentary.

Overall, the think tank has forecast Irish gross domestic product (GDP) — the total monetary value of all goods and services produced within the state — to shrink by just 1.8% this year.

This represents the third smallest decline of any European country, according to the analysis.

Meanwhile, consumer expenditure — a better metric by which to assess the national economic welfare, the report argues — is expected to fall by 9.2% after plunging by over 20% during the lockdown period.

Only the UK and Spain experienced worse declines, according to the ESRI analysis.

However, consumer spending has since rebounded and the think tank expects a return to growth next year.

Value added

While Irish GDP was inoculated by the strong performance of exports, particularly pharmaceuticals and computer services — two categories dominated by multinational companies — the shock experienced on the ground has been much worse, particularly in the construction and entertainment sectors.

This, according to the report, is related to how strict the March-to-June lockdown was compared to other countries.

Highlighting recent Oxford research in the stringency of the public health restrictions rolled out across the world in March, the ESRI report concludes that Ireland “ had one of the strictest and longest lockdowns” in Europe.

In this context, construction was among the worst affected sectors within the economy.

The value added to the Irish economy by construction activity fell by 38% in the first six months of the year as a result of the pandemic-related shutdown measures. This represents the worst decline in Europe.

Separately, value added by the arts and entertainment sector collapsed by over 70% in the first half of the year, again the most dramatic decline observed among the EU27 and the UK. 

“Naturally, the lockdown measures which have limited households’ ability to travel far from their residence closed many public amenities, and restricted group entertainment activities will have a large impact on this sector,” the commentary explains.

But the large decline was “far greater than for any other country, with Romania and Denmark the only other countries also losing more than 50% of value added.”

“For Ireland, the duality of the economic shock is notable,” the think tank notes.

“The domestic economy has been very badly affected by the pandemic with very large decreases in consumption. However, the export channel has held up extremely well and this has led to a much lower GDP adjustment than otherwise would have been expected.”  

An uneven impact

In its latest commentary, the ESRI also highlights the “swift and unprecedented” impact of Covid-19 on the Irish labour market.

It expects the Covid-adjusted unemployment rate to average out at 16.8% of the total labour force by the end of the year, up from just 5% last year.

“In September, the unemployment rate was 14.7%,” the report notes.

“This is up from 4.9% in February but marks a significant decline from a peak of 30.4% in April.”

Overall the sectoral impact of the pandemic on has been uneven, the ESRI notes.

Sectors with a higher incidence of low-paid and part-time workers have been impacted worst of all by the virus’s march through the labour market.

According to the report, the accommodation and food services sector saw the worst of the damage.

In the first quarter of 2020 there were an estimated 173,900 people working in the sector. But at the end of April, “127,000 people from the sector were claiming the Pandemic Unemployment Payment. This is 73% of those working in the sector in quarter one.”

Recovery paths

Against the backdrop of Brexit, the ESRI commentary outlines a number of paths that the recovery could take.

In a baseline scenario, the think tank assumes that the current level of public health restrictions remain in place and that a post-Brexit free trade deal is reached between the UK and the European Union before 31 December.

In this scenario, ESRI researchers expect to see a strong recovery in 2021 with GDP improving by 6.3% on the back of “robust” growth in expenditure and investment.

“However, both exports and imports are set to grow on a more modest scale than in recent years as the global economy is still set to experience reduced growth rates in the coming year,” the report notes.

In the event of a “disorderly no-deal Brexit” on 1 January 2021, the researchers believe there “is likely a significant short-term impact on the Irish economy.”

This could result, according to the analysis, in Irish GDP growing by just 3.3% next year.

Your Voice
Readers Comments
This is YOUR comments community. Stay civil, stay constructive, stay on topic. Please familiarise yourself with our comments policy here before taking part.
Leave a Comment
    Submit a report
    Please help us understand how this comment violates our community guidelines.
    Thank you for the feedback
    Your feedback has been sent to our team for review.

    Leave a commentcancel