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.
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.