Fiscal Council Webinar Wednesday 2nd December

The Fiscal Council is hosting a webinar on the December 2020 Fiscal Assessment Report, “Sustaining the Economy through Covid-19″.

This is the Council’s 19th Fiscal Assessment Report and comes as the Covid-19 pandemic continues to have a major impact on the Irish economy and public finances. The Report assesses the economic and fiscal consequences and explores a range of possible scenarios to 2025 along with an assessment of the policy consequences.

The twice-yearly Fiscal Assessment Report is the Council’s main publication. It assesses the Government’s budgetary stance, macroeconomic and fiscal forecasts, and compliance with fiscal rules.

The webinar will take place at 2pm Irish time on Wednesday 2nd December 2020.

Those interested in attending are invited to register at: https://zoom.us/webinar/register/WN_H2MmvtM-SYuOY4OPdt4ckQ.

The Fiscal Response to COVID-19

Here’s a useful paper from the Department of Finance summarising the fiscal response to date to the pandemic: https://www.gov.ie/en/publication/84a0c-taking-stock-the-fiscal-response-to-covid-19/

There’s lots of interesting material in it. One such piece is this comparison of deficits for 2020 and 2021 in the euro area.

https://www.gov.ie/en/publication/84a0c-taking-stock-the-fiscal-response-to-covid-19/

Michael Somers on Pensions

Former Chief Executive of the NTMA, Michael Somers, writes in The Irish TimesWe continue to ignore massive pensions elephant in the room‘.

Sean Barrett on Public Capital Spending

Sean Barrett in the Irish Independent writes ‘Three serious flaws in our society have converged in children’s hospital debacle’.

Central Bank Quarterly Bulletin 4, 2020

A guest post by Enda Keenan from the Central Bank, highlighting some of the key messages from Bank’s latest Quarterly Bulletin.

Today the Bank published its fourth and final Quarterly Bulletin for 2020. The report contains a detailed overview of developments in the economy since the publication of last Bulletin in July as well as our latest macroeconomic forecasts out to 2022.

The forecast for GDP growth has been revised upwards to -0.4 per cent in 2020 reflecting more positive developments in consumption, strong export performance and an enhanced level of fiscal support arising from the July stimulus package. Growth prospects for next year and 2022 are more subdued compared to the previous Bulletin due to the implications of a WTO Brexit. As outlined Box A, a disruptive transition to a WTO trading relationship would frontload associated output and employment losses. In this baseline scenario, the growth rate of the Irish economy is 2 percentage points lower in 2021 relative to a Free Trade Agreement due to the introduction of tariff and non-tariff barriers. The ILO unemployment rate is projected to average 5.3 per cent for this year, rising to 8 per cent in 2021 following the closure of income-support schemes at the end of the first quarter (Box D in the Bulletin discusses the challenges that arise for measuring unemployment in the time of COVID-19).

Since re-opening from a period of lockdown, the recovery of the Irish economy has been uneven as levels of domestically focussed economic activity remain well below pre-pandemic levels. In particular, consumer-facing services sectors, such as tourism, hospitality and retail services, which are also more labour-intensive, have been slower to recover contributing to a projected decline in underlying domestic demand of 7.1 per cent this year. The strong performance of exports, which are expected to decline by just 0.3 percent in 2020, is the main factor driving an upward revision in the baseline projection for GDP. Box C details the relative resilience of high-value exports such as computer services and pharmaceuticals during a period of declining trade-weighted world demand.

The Central Bank’s Business Cycle Indicator (BCI), a monthly summary indicator of overall economic conditions estimated from a larger dataset of high-frequency releases, fell sharply during the months of March and April reaching a historical low (Figure 1). The latest estimates show that economic conditions continued to improve into July and August, but the rate of recovery has slowed down. Despite the improvement over the four months to August, the overall level of the BCI remains substantially below that observed prior to the emergence of the COVID-19 crisis.

Figure 1: Business Cycle Indicator (BCI) for Ireland’s Economy

The outlook remains highly uncertain, depending not only on the economic consequences of COVID-19 and its containment, but also on the nature of the trading relationship between the EU and the UK. Recognising this uncertainty, Box E analyses the impact of a ‘severe’ COVID-19 scenario as an alternative to the baseline forecasts in which there is a strong resurgence of the pandemic, leading to the restoration of widespread and stringent containment measures for a more prolonged period. Underlying domestic demand is projected to fall by 8.5 per cent in 2020 in this case with a continued contraction of -1.3 per cent into 2021. While the economy does not begin to recover until 2022, underlying domestic demand remains 6 percentage points below 2019 levels. In the ‘severe’ scenario, the unemployment rate rises to 12.5 per cent in 2021 before moderating to 10.1 per cent the following year.

The bulletin also contains analysis on the latest income tax developments and measurement difficulties for the unemployment rate arising from COVID-19.