This article is from our October 2020 edition of MarketWatch.
27th October, 2020
Our revised Irish economic forecast is for GDP (Gross Domestic Product) to contract by only 1.7% in 2020 and rebound by 3% in 2021. Irish GDP data have held up remarkably well, but mainly because of the resilient multinational, pharmaceutical, and information technology sectors. Underneath the bonnet, Ireland’s tight Covid-19 business restrictions, particularly on travel, have led to some of the sharpest contractions in output across Europe in indigenous sectors such as construction, hospitality, retail and services.
Clearly a substantial rebound occurred through the summer, evident in falling unemployment welfare claimants and a pick-up in household spending. However, the recovery is far from complete. Survey data from the Central Statistics Office (CSO) and Chambers Ireland show revenues and employment in many sectors remained impaired in September. Debit/credit card spending on accommodation, entertainment, services, and transport is still well down on normal levels.
Irish banks will soon have to deal with the fallout of the Covid-19 lockdown on loan performance. Central Bank data shows that in early September there were still €14.7billion mortgage and corporate/SME loans on payment breaks, which will soon start to hit the 6-month deadline. Dealing with borrowers struggling to pay their debts will soon become a challenge.
The Fianna Fáil, Fine Gael, and Green Party government has already signaled October’s budget will be focused on housing, infrastructure, the environment, and supporting the economy. However, most economic supports were already extended into 2021 in July’s stimulus programme. So, Budget 2021 will probably provide some small extra stimulus. Still, this is welcome. Resilient tax revenues have allowed the government to loosen the purse strings a little more.
Confounding warnings of ‘double-digit’ declines in house prices. For now, Covid-19 has tightened the market. The number of properties listed for sale on MyHome.ie is down 25% on 2019 levels. Also, the hit to employment has been concentrated amongst lower paid, younger, part-time workers who are not natural home buyers. So resilient demand has supported prices amid weaker housing supply.
Of course, the key factor that will drive the economy is progress in addressing Covid-19. In September, some restrictions were eased outside the capital Dublin. However, the number of weekly Pandemic Unemployment Payment (PUP) claimants rose last month for the first time since April, demonstrating the tighter restrictions in the capital were already starting to hurt employment.
Despite Brexit risks resurfacing and negotiations set to press on into October, there is no doubt the key risk to the Irish economy remains a potential second wave of Covid-19.