Dáil Éireann Debate, Tuesday - 8 December 2020
176. Deputy Pádraig O'Sullivan asked the Minister for Finance his Department’s current projection of the extent to which the economy will contract in 2020; and if he will make a statement on the matter. [41227/20]
View answerThe latest data shows the economy recovered in the third quarter of this year, with GDP increasing by 11 per cent relative to the previous quarter, following the sharp decline seen in the second quarter, a pattern seen in all economies. As a result, GDP was 8.1 per cent higher on an annual basis. However, as has been well documented GDP is not an accurate measure of what is going on in the domestic economy, given the size of the multinational sector. In the third quarter, modified domestic demand – a proxy for the domestic economy – was down -2.4 per cent year-on-year, with personal consumption down by -5.7 per cent and (modified) investment down by -4.4 per cent. On the other hand, exports were up 5.5 per cent, due to strong growth in the multinational dominated pharmaceutical sector.
Looking forward, a contraction in the domestic economy is expected for the fourth quarter as a result of the move to Level 5 of the Living with Covid Plan. However I am optimistic that it will not be as large as that recorded in the second quarter as many sectors of the economy including construction, manufacturing, education and childcare remained open. In the labour market, while the numbers of persons in receipt of the pandemic unemployment payment has increased by around 105,000 to 350,000 since Level 5 restrictions were introduced, the overall number of recipients has remained well below the peak of 600,000 in early May.
While GDP growth may in the end be positive for the year, modified domestic demand will almost certainly still be negative, in line with previous expectations, with private consumption expected to be particularly hard-hit from the restrictions. The extent of the contraction of the domestic economy will become apparent in the coming weeks as hard economic data covering the Level 5 lockdown becomes available.
