The Finance Department has forecast that the economy – as measured by GDP – will shrink by 2.5% this year, better than its earlier forecast of a drop of 10.5%
Modified Domestic Demand, which strips out the impact of multinationals on the economy, is forecast to shrink by 6.5% in 2020. This compares to the forecast reduction in MDD in April of 15.1%.
However, the prospect of a no-trade deal Brexit has led to a forecast in GDP growth next year of 1.4%. That compares to an anticipated 6% bounce back in growth predicted in April.
Unemployment is also forecast to end up worse this year than was forecast in April. The average unemployment rate for 2020 is forecast to be 15.9% compared to 13.9% earlier this year.
The forecasts have been endorsed by the Irish Fiscal Council and will form the basis of next month’s Budget.
The revision upwards in GDP is explained by the continuing strong performance by the multinational exporting sector.
However, the department described the ongoing impact of Covid-19 on the domestic economy as “severe”.
Minister for Finance Paschal Donohoe said today’s macroeconomic projections are based on two key assumptions.
Firstly, from the beginning of next year, bilateral trade between the UK and the EU will be on World Trade Organisation terms, and secondly, a widespread vaccination for Covid-19 vaccine will not be available.
Mr Donohoe said the Covid-19 pandemic will result, in all likelihood, in some level of permanent damage to the economy, so-called “scarring effects”.
“However, policy can help to minimise these. The forthcoming Budget will continue to provide counter-cyclical support to the economy and provide details on the Recovery Fund which is provided for in the Programme for Government,” Mr Donohoe said.