Unemployment levels are likely to peak in the first quarter of 2021 before falling again but the Economic and Social Research Institute (ESRI) predicts they will remain above 10 per cent by the end of the year.
The economics body has revised growth downward for the year and expects the number of people out of work to be higher than previously estimated, both as a consequence of punishing and unforeseen Level 5 restrictions.
But it says that despite the downgraded forecasts, Ireland’s economy actually grew last year and has proven itself “better placed than most to emerge from the pandemic.”
Addressing the Oireachtas Budgetary Oversight Committee on Tuesday, the ESRI's Professor Kieran McQuinn outlined how the unforeseen effects of Covid-19 has affected the country's economic performance so far and what this means for the rest of the year.
Of particular note, he said he expected the fiscal accounts for 2021 to be in a “more adverse state” than previously thought due to unemployment.
A deficit of 4.8 per cent, or €18.9 billion, is likely, propelling the debt-to-GDP ratio from 58.8 per cent in 2019 to over 62 per cent by the end of the year. The deficit in 2020 is €23 billion.
Unemployment had declined to less than 17 per cent in quarter three last year but is likely to average over 25 per cent in quarter one of 2021.
The monthly estimated cost of unemployment to the Exchequer is €144 million in the absence of the Pandemic Unemployment Payment or the Employment Wage Subsidy Scheme. With those payments in place it rises to €193 million per 100,000 newly unemployed.
“It is notable however that much of the estimated Exchequer loss would have been experienced in the absence of these policies…[because] the existing tax benefit system would have helped stabilise incomes, for example through increased jobseekers benefit or assistance payments,” Prof McQuinn told the committee.
The ESRI’s Winter 2020 commentary last December had envisaged further pandemic restrictions, but not until quarter two and not expected to be as restrictive as the eventual Level 5 lockdown.
“Consequently we are now revising downwards our growth expectations for the Irish economy in 2021. We still believe the economy will register positive growth of approximately 4 per cent in the present year,” he said.
“The expected path for unemployment in 2021 is also revised upward albeit marginally. We now expect the unemployment rate to peak in the first quarter of 2021 before falling persistently thereafter. By the end of the year the rate is just above 10 per cent.”
Despite this negative economic outlook, Prof McQuinn noted that many had envisaged worse.
“The Irish economy performed much better than expected in 2020,” he said. “Like most commentators we had believed at the outset of the pandemic that the economy would contract significantly in 2020. However, it is now likely…that the economy grew by approximately 3.4 per cent last year.”
