The Central Bank believes Irish economic activity will remain weak in the first half of this year, with a recovery starting in the second half, though it warns that this forecast assumes that vaccines will be successfully and widely deployed.

In its latest quarterly economic bulletin, the bank says the near-term outlook has deteriorated due to the recent resurgence in COVID-19 cases and the new measures to contain its spread.

It adds that its forecasts are subject to “exceptional levels of uncertainty”.

'Lasting impact' of crisis

On Brexit, the bulletin says that while new trade frictions will affect growth in the Irish economy, the outlook for exports and overall economic activity has improved compared with the prospects under a no-deal outcome.

Director of economics and statistics Mark Cassidy (pictured) said the prospect of widespread deployment of vaccines offered hope for a path out of the crisis and an improved economic outlook. But he warned that a recovery may not be even across all sectors or demographic groups.

“The crisis may have a lasting impact on some activities, for example, through shifts in the delivery of services or changing consumer preferences,” he said.

The bank expects modified domestic demand to grow by 2.9% in 2021, while GDP is projected to grow by 3.8%, although it warns that a recovery in the jobs market is likely to be slower.

Confidence

The bulletin forecasts a further pick-up in 2022 as business and consumer confidence improves, with modified domestic demand forecast to grow by 3.6% and GDP projected to grow by 4.6%.

The GDP forecasts for 2021 and 2022 represent slight upgrades compared with the bank’s previous forecasts. It also believes the economy grew by a better-than-expected 2.5% last year.

"The unwinding of the large stock of savings accumulated during the pandemic should support a strong recovery in consumption in 2022,” the bank says.

Labour market lag

It sees an average unemployment rate of 9.3% this year, falling to 7.8% in 2022, with employment staying below pre-pandemic levels due to the delayed impact of more than a year of closures on some sectors.

Virus-related spending led to a deficit of 8.8% of GNI* (a measure used by economists as an alternative to GDP). The bank sees this deficit remaining unchanged in 2021 before falling back.