New official forecasts predict a strong post-Covid economic bounce in Ireland, with growth of 4.5% per cent this year and 5% in 2022. The Department of Finance also believes the budget deficit – the gap between State spending and income – will fall quickly from next year, and be nearly balanced by the middle of the decade.
Speaking at the launch of Ireland’s latest ‘stability programme update’ last week, public spending minister Michael McGrath said he did not see a return to austerity budgets, as there will be no pressure to cut public spending or raise taxes significantly if the forecasts prove correct.
This optimistic outlook was broadly shared by the trade union-backed Nevin Economic Research Institute (NERI), which last week forecast growth of more than 4% in 2021, and of 5% in 2022. Writing in NERI’s latest economic outlook, its co-director Tom McDonnell said the gradual easing of lockdown will trigger a prolonged economic expansion.
“The economy should be growing robustly on an annualised basis by the end of 2021. This assumes a successful vaccine rollout, a full or almost full opening of society, and retention of targeted supports for weakened but viable businesses,” he said.
Jobs remain a blot on the economic landscape for the time being, with unemployment projected to average over 16% this year before falling to about half that in 2022.
According to McDonnell, the labour market won’t fully recover until the end of 2023. “The extent of structural damage to the labour market remains unclear, but we anticipate scarring will be much less than previous crises,” he said.
Since the onset of the pandemic, Fórsa general secretary Kevin Callinan has warned against an austerity response to the economic fallout. Last May he predicted the possibility of a radical shift in European economic policy in the wake of the crisis.
“The orthodoxies that shaped the response to the 2008 crisis remain ingrained, but they are incapable of addressing the sheer scale of the coming economic storm, not least as they would likely demand a level of austerity that democracies simply could not sustain. We need something radically different,” he wrote.
Less than a year later, those orthodoxies have become substantially less ingrained.
Callinan had also lamented the lack of US leadership under then-president Donald Trump. But his successor, Joe Biden is powering a new approach with unabashed investment in job-supporting infrastructure and Covid reliefs, as well as a new look at corporate tax rates.
Fórsa and other unions want a similar approach, and NERI is calling on the Government to take advantage of low interest rates to fund a multi-billion stimulus programme based on investment in infrastructure and the transition to a zero-carbon economy.
“Our view is that the Irish state’s revenue base will eventually need to be broadened. Corporation tax receipts are likely to structurally shift downwards over the medium-term given international policy momentum,” says McDonnell.
Read the NERI economic outlook HERE.