Ireland’s economic recovery may drag until 2022 ‘at earliest’

Recovery of Irish economy to 2019 levels won’t happen until 2022 warns Ibec economist.

Business group Ibec has predicted a long road ahead for the Irish economy and has warned that recovery of the economy to its 2019 level as a result  of the Covid-19 outbreak and subsequent lockdown will not happen until 2022 at the earliest.

In its latest Quarterly Economic Outlook Q2 2020, Ibec forecasts a contraction in GDP of 11pc in 2020 and for consumer spending to fall by 14pc.

“We are currently living through the sharpest compression of economic activity in living memory”

The Outlook says that in a best-case scenario unemployment will fall from a current 28pc to 16pc by the end of 2020 and falling to 7pc by the end of 2021.

Investment is expected to fall by almost 40pc this year.

A long road ahead

Ibec chief economist Gerard Brady said that the length of the lockdown in Ireland, including a more conservative pace to re-opening of the economy than our peers, will help determine the scale of the fall in economic activity.

He said that if Ireland plans to have a significantly longer lockdown than most developed countries then we cannot, at the same time, plan to run a deficit which is at the lower end of that same group of countries unless we are providing lower relative supports for businesses.

Brady warns further significant measures will need to be taken over the coming months to protect households and business, get people back into jobs, and bring forward maintenance and investment projects from an extended capital plan.

“We are currently living through the sharpest compression of economic activity in living memory. Whilst many of the collapsing economic figures presented in this report are the result of necessary public health decisions, their impacts on incomes and balance sheets are no less real. 

“The recent roadmap published by Government gives welcome clarity on when sectors may expect to be allowed re-open again, but it is also clear that normal conditions will not return for some time.

Brady said that contrary to early hopes, the public health and economic crises’ will not be temporary and will last well into 2021.

“Early signs in other economies are that consumer fear of the virus and ongoing social distancing will play a major role along the path to demand normalisation. We now have to accept that the impact of living with the virus is likely to last a year or more,” Brady said.

“During this period, there is also a growing risk of a cliff-edge Brexit happening in December 2020, ongoing uncertainty about global tax reform, and a prolonged reduction in global economic capacity. Just like a decade ago, recovery will rely on Ireland’s export led growth model delivering to its full potential in the years ahead.”

Written by John Kennedy (john.kennedy3@boi.com)

Published: 5 June, 2020