Dáil Éireann Debate, Thursday - 26 November 2020
75. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied that Ireland’s economy remains robust and stable when compared to other economies across Europe, within the eurozone and without; and if he will make a statement on the matter. [39138/20]
View answerThe outbreak of the Covid-19 pandemic earlier this year and the restrictions introduced to suppress the virus led to an unprecedented contraction of global economic activity. Lockdown restrictions saw the Irish economy contract by 6 per cent in the second quarter - the largest quarterly decline on record.
This figure was at the lower-end in a European context, with GDP declining by -20 per cent in the UK and -12 per cent in the euro area respectively. However, Ireland’s GDP was boosted by a surge in exports of pharmaceuticals, and masks a very sharp hit to the domestic economy. By contrast, domestic demand declined by -16 per cent in the second quarter, a figure that is more in line with the contractions seen in other countries.
As restrictions were lifted over the summer, however, the economy showed signs of recovery. The unemployment rate, which peaked at 30 per cent in April, declined to 16 per cent in September. Similarly, retail sales, which collapsed in April, surged in May and June, with activity remaining above the pre-pandemic level since then. The lifting of restrictions in other European countries also resulted in rebounds in economic activity, with GDP growth of around 16 and 13 per cent recorded in the UK and euro area in the third quarter.
At the time of Budget 2021, my Department forecast a decline in GDP of -2½ per cent this year, with domestic demand projected to fall by 6 per cent. These projections assumed that targeted measures would be introduced in response to any increase in the Covid-19 infection rate; crucially, that there would not be a second national lockdown. However, the recent move to level 5 of the Plan for Living with Covid-19 means that the contraction of the economy this year is likely to be more severe than anticipated. This is by no means out of line with the experience of other European countries. Recent increases in Covid-19 cases have seen the introduction of additional restrictions in the UK and euro area, with GDP declines of -10 and -8 per cent respectively forecast by the European Commission for this year.
