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THE DEPARTMENT OF Finance has warned that it is too soon to predict the long-term impact of Covid-19 on the economy.
Publishing the Stability Programme Update (SPU) today, Finance Minister Paschal Donohoe said the report does contemplate a so-called “scarring” of the economy that could mean certain jobs do not return once the pandemic has passed.
The annual SPU is published each year for consideration by the European Commission and European Council under requirements under the Stability and Growth Pact.
The 2021 SPU is forecasting GDP growth of 4.5% for this year and 5% next year.
Modified Domestic Demand, which strips out the effect of multinationals, is being estimated to grow by 2.6% this year and 7.4% next year, following a decline of 5.4% last year.
The predictions for the growth of the domestic economy is largely based on estimates of pent-up demand, with the department estimating that there is between €11-12 billion in “excess savings” within the economy.
The Department of Finance’s chief economist John McCarthy said this afternoon that these savings are concentrated in “better off or middle or high income households”.
He added that the department expects that “about €3 billion” of these excess savings will be used for consumer spending.
The projections for the economic outlook assume that there will be a gradual relaxation of Covid-19 restrictions over the second quarter followed by even further relaxation in third and fourth quarters.
The SPU outlines that, should there be a “severe epidemiological scenario” whereby the current restrictions need to remain in place for a prolonged period, GDP growth this year would be almost one percentage point lower than forecast and 2.5 percentage points lower next year.
In terms of unemployment, the projections estimate an average unemployment rate of 16.3% over the course of this year, declining to 8.2% next year and then 6.7% in 2023.
Early last year, before the effect of the pandemic hit, the seasonally adjusted unemployment was 5.4% in March 2020 and 4.8% in February 2020.
Speaking to reporters this afternoon, the Finance Minister said employment is estimated to increase by 80,000 jobs this year and 225,000 jobs next year but that it would not be until 2023 that the country sees employment “comparable” with pre-pandemic levels.
He acknowledged, however, the potential for some jobs not returning:
The figures here do recognise that awful phrase which is ‘a degree of scarring’ within our economy, which translates to jobs that were there that are not coming back in the way that they were. And of levels of income that were there that might not be coming back in exactly the way they were.
This possibility is also noted within the SPU itself, which says that “a slow exit from social restrictions” raises the prospect of “deeper and wider scarring effects”.
“Some businesses would fail under the strain of a continuing lockdown, leading to more jobs being permanently lost,” the report says.
It must be stressed, however, that until the pandemic subsides, any assessment of scarring is highly tentative. Estimates are also time-sensitive and will be revised as additional information becomes available.
The SPU also notes that it is “extremely challenging” to predict how the economy might recover, noting a range of uncertainty surrounding Covid-19 variants, the roll-out of vaccinations and the unwinding of restrictions.
Government supports
Minister for Public Expenditure Michael McGrath said this afternoon that the amount spent on Covid-19 related supports last year and so far this year was “in excess of €28 billion” and that the amount allocated for such spending in 2021 was €12 billion.
He added that, while no decision has yet been taken on the extension of supports beyond the currently approved timeline of the end of June, there would be no “cliff edge” stopping the supports suddenly.
“We recognise that if there was a cliff edge on those supports it would in many respects be a false saving given the consequences that it would have for employment levels in the country,” the minister said.
“So I can’t be specific about what the impact will be over the course of the full year but we stand by the commitment that the supports will not end entirely at the end of June.”
He added:
“We will be very much guided by the evolving public health situation and we recognise that when it comes to the economic supports in particular, there is a need as they are being removed that it would be done in a careful and a gradual way.”
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If you’re a small business forget it, the govt doesn’t care. If, however you are a large multinational or a supermarket multiple the rules don’t apply. You can do what you want or sell what you want
@Virgil: I’ve a small business and I get plenty of support from the government, so don’t speak for my small business with 4 employees. End of the day I don’t expect the government to make sure my business is viable however I appreciate the support I do get, especially in these times.
@M. Murphy: Yes they should make sure a business is viable if they forced them to close.
@The Firestarter: nonsense. I may aswell hand over the right to my business to the government if I need the powers to be to make sure I will survive. Sometimes you got to work hard, fail hard and try your best to re start if you fail. What’s the point on being a sole trader if at the end of the day the government tells me my business no longer is viable, because that’s your logic. Or does it only apply when it favours me ?
@M. Murphy: Well you are definitely one of the lucky ones. Unfortunately not everyone is in the same boat.
@M. Murphy: well large corps in the country in particular in the financial sector are supported in order for them to survive at all cost. So if by your measurement that’s not a good business plan how does it work for them?
@M. Murphy: I’m talking about if the government forces a viable business to close because of Covid, then yes they absolutely should 100% support that business.
FF and FG are preparing us for another bailout so they can sell off the rest of the countries assets before the next election.
Money comes and goes. You don’t get your time back. These lockdowns will do more damage to people than any loss of money could ever do. This Government is embarrassing , the parent to child psychology that’s aimed towards the citizens is insufferable also. Who governs the government? This length of lockdown is cruelty. Needs to be called out. We need the Facts and figures. What’s the plan and why is that the plan? Pretty simple really.
tax
Can’t tax workers any more, FGFF have workers paying up to 50% tax, while corporations pay 0% tax.
(And there’s no high unemployment rate in countries with high corporate tax like the Nordic countries, Austria, USA, Germany, Czech)
@Dean: They can and most likely will….. USC was brought in and is still around…… They dont care about the regular worker while they get their 6 figure salary and tax free allowances which nearly equates to another 6 figure salary. Govt bought the country to its knees during the financial crisis on the back of the bankers and there hasn’t been much spending reform in the public sector….. Crazy wages, insanely priced projects with no proper management or cost control…… Imagine how better off the regular worker would be financially if there was a competent govt in charge instead of running from one scandal to the next and burning through the public finances.
Legalise cannabis. Guaranteed earner.
The way that some experts are predicting that this pandemic could be with us for another
four years I can’t see the economy rebounding the way the government thinks that it will
How about the long term scarring to unvaccinated frontline workers health.
I think long term “decimation” is a better word.
The problem is the excessive lockdown no. 5 across all counties imposed by the government for many months. There’s no scientific reason why outdoor dining, outdoor sports and many services, like click & collect are in permanent lockdown. No amount of money thrown by government to appease businesses will help if such draconian measures are in place for so long.
It certainly won’t have scarring effect on TDs
And let’s not forget the scarring called Fianna Fáil and Fine Gael… One that was long etched before Covid!!
In a political duopoly, there isnt any issue is there? Covid will be the root cause of all of our problems for the next 10 years, not any political or public sector ineptitude.
I’ll give you the long term impact on the economy : Fu*ked.
If the country’s finances are lagging then many areas will need to be looked at, For example public sector pensions and gratuity there’s huge scope for savings here, the current system like or not needs to change.
And yet rents still going up, greed will catch them out.
Do you know what a tax is ? Cos your getting taxed
Sher the young people can sort it out! Lol.
Impossible to post any sort of comment criticising due to AI wtf
have your say