Dáil Éireann Debate, Tuesday - 9 November 2021
281. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects the economy to recover over the next year after the relaxation of Covid-19 restrictions; and if he will make a statement on the matter. [54732/21]
View answerDue to the success of our vaccination programme restrictions were eased over the course of the second and third quarters, with the domestic economy recovering strongly as a result. In the second quarter, modified Domestic Demand (MDD) – the best measure of domestic economic activity - surpassed the level immediately preceding the pandemic (2019-Q4) for the first time since the start of the crisis. Higher frequency data, including retail sales and tax receipts, point to a continued improvement in domestic economic activity in the third and fourth quarters, with the resumption of contact-intensive services activity at the beginning of the summer an important tailwind for the domestic economy.
Looking forward, the recovery in the domestic economy is expected to continue, albeit at a more modest pace. My Department published macroeconomic forecasts as part of Budget 2022. These projections assume that there are no further public health restrictions over the short-and medium-term. Under this assumption, MDD growth of 6½ per cent is projected for next year. This is expected to be led by personal consumption and a recovery in construction. The economic recovery is also expected to support a recovery in the labour market, with the level of employment expected to exceed the pre-pandemic peak of just over 2.3 million during the first half of next year.
The rapid rebound in domestic economic activity has also been accompanied by rising inflationary pressures. Consumer price inflation is expected to continue to rise over the rest of the fourth quarter and average 2¼ per cent for 2021 as a whole, with a similar rate expected next year. However, the recent rise in the wholesale price of oil and gas means that there could already be some upside to these projections. Rising energy prices alongside the potential of more prolonged global supply chain disruption poses an upside risk to the outlook for consumer prices, with implications for the broader macroeconomic outlook as well.
The potential emergence of vaccine resistant variants also poses a risk to the economic recovery as this could lead to further infection waves and a re-imposition of public health restrictions.
