Dáil Éireann Debate, Thursday - 26 November 2020
219. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he remains satisfied regarding the stability of the economy in the face of the twin challenges of Brexit and Covid-19; and if he will make a statement on the matter. [39468/20]
View answerCOVID-19 and Brexit represent key challenges facing the Irish economy at present. As a result, the Budget 2021 projections were prudently based on a disorderly end to the transition period between the UK and the EU while it was also assumed that a widespread vaccine for COVID-19 would not be available before the end of 2021. Given these assumptions, the relationship between the two shocks is important for understanding short term economic developments.
To inform the Budget 2021 economic projections my Department and the ESRI conducted an analysis of the sectoral overlap of the COVID-19 and no deal Brexit shocks. The key finding of the analysis is that there is limited overlap of the sectors exposed to the different shocks. No sector was found to be severely affected by both shocks. The analysis finds that while a dual shock from a no deal Brexit and COVID-19 increases the number of sectors at risk, the impacts of each individual shock are not exacerbated by the other shock.
As the COVID-19 and Brexit are likely to affect different sectors of the economy the Budget 2021 projections effectively treated the two shocks as ‘additive’. As a result, my Department is projecting that the economy will record a modest recovery next year with GDP growth of 1¾ per cent in prospect reflecting the continued impact of COVID-19 on the economy as well as a no deal Brexit. The impact of Brexit is estimated to reduce growth by 2½ to 3 percentage points next year, while over the medium term the level of GDP is expected to be approximately 3½ percent lower relative to a hypothetical status quo scenario.
We face these twin challenges of Brexit and Covid-19 from a position of strength. Our well educated work force and pro-enterprise culture mean that the fundamentals of our economy are strong and will facilitate a return to growth when conditions allow. Indeed, against this challenging economic background, the main focus of Budget 2021 was on meeting these twin challenges.
Budget 2021 includes provision for a €3.4 billion Recovery Fund - equivalent to c. 1.7 per cent of GNI*. The purpose of the Fund is to provide maximum flexibility to allow Government respond swiftly and decisively to the evolving public health and economic situation, including the fall-out from the ending of the transition period (that governs bilateral trade with the UK) at end-December. Prudent economic management in recent years has allowed us to direct an unprecedented level of resources to addressing these challenges. Careful management of the public finances is needed in order to chart our way forward through the uncertain times ahead.
