Dáil Éireann Debate, Thursday - 14 January 2021
69. Deputy Bernard J. Durkan asked the Minister for Finance the particular issues that have arisen in recent times with specific impact on Ireland’s economy; the adequacy of the steps taken to respond; and if he will make a statement on the matter. [2159/21]
View answerAt the time of Budget 2021 in October, my Department forecast GDP growth of about 1 ¾ per cent for this year. These projections were based on the assumptions that a vaccine for Covid-19 would not be widely available before the end of this year and that bilateral trade between Ireland and the UK would take place on WTO terms from January.
However, the public health and economic situation has evolved significantly since the Budget forecasts were published. As it stands, there are both material upside and downside risks to the economic outlook for this year. On the upside, the recent Trade and Cooperation Agreement between the EU and the UK is positive for Irish exporters compared to the ‘no-deal’ scenario upon which the Budget forecasts were based, as it will provide for zero-tariffs and zero-quota trade for qualifying EU and UK goods. However, the Agreement also introduces ‘trade frictions’ in the form of non-tariff barriers, which will increase trade costs. Therefore, while the agreement protects Irish firms from the more significant impact of a ‘disorderly’ scenario, they will still be impacted by the change in trading arrangements. An earlier than anticipated rollout of vaccines will also improve the economic outlook for this year.
On the downside, however, the re-introduction of Level 5 restrictions at the beginning of this month will likely have a contractionary effect on the economy. Overall, there remains considerable uncertainty surrounding the economic outlook as it will depend on many factors, including the speed at which Covid-19 vaccines can be rolled out, the time it takes to suppress the current wave of the virus, and the impact of the UK’s exit from the EU on the economy.
The government has provided an enormous amount of fiscal support in response to the Covid-19 and Brexit crises. At just under €40 billion, the level of fiscal support made available in 2020 and 2021 has been unprecedented. Using counter-cyclical fiscal policy in this way has been the most appropriate course of action and was made possible only by the prudent management of the public finances in recent years. As the public health situation improves, we will have to move to a more sustainable fiscal trajectory. The Department will publish its medium-term macroeconomic and fiscal forecast with the Stability Programme Update in spring this year setting out the trajectory towards a more sustainable fiscal position.
