Before I begin, I would like to offer my condolences to those who have lost loved ones as a result of the Covid-19 pandemic. I pay tribute to our public servants, healthcare professionals, carers and shop workers. I acknowledge the remarkable solidarity shown by the overwhelming majority of Irish people towards their own families, friends and neighbours, but also towards strangers and the broader community as a whole, over recent weeks.
I welcome this opportunity to present the stability programme update to the House today. This is to allow Dáil Éireann an opportunity to debate the document before the Government formally submits the final version to the European authorities at the end of the month. We have kept our assessment to the current year and next year. There is simply too much uncertainty to do otherwise. We have presented scenarios in our presentation. The economic projections set out in the stability programme have been endorsed by the Irish Fiscal Advisory Council, IFAC. This is a legal requirement.
The discussion of our public health and economic status is honest about today but it is also honest about our future prospects and about what we can achieve. We can and will renew the economy of Ireland when we have recovered our public health but we are now in the midst of a severe recession, both globally and domestically. For Ireland, my Department is expecting gross domestic product to fall by 10.5% this year. This scenario rests on the assumption that the current containment measures remain in place for about three months – covering most of the second quarter of the year – and are incrementally eased thereafter. Recovery in the second half of the year is, accordingly, steady, while behavioural changes on the part of firms and households mean that the level of economic activity will clearly be below what would be the case had there been no pandemic. Therefore, we are now considering a U-shaped recovery.
It is evident to all in this House that jobs, and our people, have borne the brunt of an unprecedented economic decline. Our labour market has been turned on its head: transformed from a position of full employment to one where unemployment has risen at a completely unprecedented speed and scale. As highlighted yesterday, our unemployment rate could hit 22% in the second quarter of this year, having stood at just 5% as recently as January. Let me re-emphasise, however, that we can and will recover. Our economy can grow again next year, employment can grow, unemployment can fall, and our public finances can improve. This is because, as the experience relating to the previous financial crisis and great recession shows, our economy and jobs market are very resilient and have real underlying strengths that this crisis has not altered. In particular, the internationally traded sectors of our economy, such as those relating to technology, pharmaceuticals and medical devices, have shown themselves to be highly resilient during the current crisis. Moreover, we have entered recession because of a health crisis not because of imbalances in, or mismanagement of, the economy. In fact, none of the imbalances that characterised our economy previously - credit growth, borrowing from abroad through a balance of payments deficit - is evident at present. Household and large companies' balance sheets are, in many cases, in a much better position than a decade ago, at least at an aggregate level.
Once the pandemic is contained, we will be in a position to recover. The gradual recovery assumed in the second half of the year is projected to gain momentum next year, with the economy growing by 6% during 2021. We can expect economic activity to reach its pre-crisis level in 2022. A central focus of our recovery effort will be getting as many people back to work as the public health situation allows. We want to make the recovery a job-rich one - like the recovery from the financial crisis - and we will ensure that the right policies are put in place to deliver this in the context of a fundamentally different new normal in our economy. It is possible, for example, that we could see employment grow again next year, if we are successful in our public health efforts and if we see the global economic environment perform as we are currently projecting in the stability programme update. We could see an additional 115,000 jobs put back into homes and communities and that this will reduce the unemployment rate to below 10%. At 10% or even below that, it is still too high but it is a significant change from where we could be in the coming weeks. A strong and diverse jobs market has been the engine of our recent economic success. We are determined that this engine will once again be able to provide a job for everyone who wants one as we move into the post-Covid 19 era.
I will now update the House on the budgetary situation. In budgetary terms, the responsible manner in which our public finances were managed means that we are in a position to absorb a short-term and significant increase in borrowing. As the House knows, we achieved a surplus of 0.4% of national income last year. That would have accelerated considerably this year. We also set up a rainy day fund and we have been steadily reducing our debt ratio in recent years. That is the foundation of our ability to respond now.
For this year, a sharp deterioration in the public finances is now expected, with a general government deficit of approximately €23 billion, or 7.4% of national income. To be clear, this projection is based on assumptions about public health, what will happen with economies elsewhere and on policy decisions that have already been made. As such, it excludes decisions that could be made by this House, this Government and the Government yet to come. When those assumptions change from a policy point of view, or if the economic recovery is delayed, the deficit could change, too. It could be as large as indicated in the stability programme update, €30 billion, or approximately 10% of our national income.
However, in the event that we recover in the way I have outlined - I have every confidence that we can when our public health allows us - it is feasible to foresee an economy that begins to recover, albeit at a pace in line with where we are with public health, this year and grows next year by approximately 6%, with important qualities in our labour market creating jobs. This in turn will create the ability to reduce the deficit next year.
This year's deficit arises from a combination of decisions that have been supported by the House. I wish to emphasise my appreciation for the way in which many of my colleagues in the Oireachtas have approached the decisions we have needed to make at speed. Measures have been taken to support homes, support our citizens who are facing a considerable loss of income and support firms in keeping jobs. That was entirely appropriate and is the way in which budgetary policy should be used. The very reason we run surpluses in good times is to ensure that we have the resources available to us at times such as this.
The House will be aware of the expenditure commitments that have been made to support income. The additional funding that has been provided is based on the projections that I have updated the House on previously and will in turn impact on our public finances. The debt-to-national income ratio is forecast at 69%, an increase of ten points. Meanwhile, our debt-to-GNI* is expected to increase to 125% for the year. To put those figures in context, the changes are in line with the international norm. Our budgetary position is very much in line with that of other advanced economies responding to the crisis. It will mean that, within the Stability and Growth Pact, it is likely that we will see the triggering of an excessive deficit procedure. However, we will share that with many other countries within the European Union.
In terms of repairing our public finances, economic recovery can drive most of the improvements. Growth will boost tax revenues and reduce unemployment, both of which will benefit the public finances. Furthermore, if the right decisions are made at international levels, we can avoid the pain of the last crisis.
This does not mean that this or a future Government will be able to do everything. Our deficit will have to be reduced, our national finances must return to a position of balance again. The daily debates about making choices within limited resources that existed before this crisis will endure and continue after the crisis has passed. What we value and prioritise and how we pay for it will continue to be a central debate of democratic politics.
We will be able to fund our deficit for this year and next. The situation is currently favourable. The National Treasury Management Agency, NTMA, had approximately €22 billion of cash on its balance sheet at the end of March. Part of this was used to refinance an €11 billion bond that matured this week. An additional bond matures in October and there are a small number of bilateral loans that mature this year.
The NTMA will also finance the Exchequer deficit of €15 billion, partly through cash balances and with new financing, which will be long and short-term in nature. The NTMA has announced its 2020 bond-funding range schedule and, importantly, we can borrow at less than 0.5% on ten-year debt at the moment. I also note that there are no bonds maturing for next year, which gives us important space. The State is in a strong position to fund the deficit that has developed. Equally, it will be essential that as our economy improves, so will our public finances.
Let me be unequivocal. Ireland will recover from this crisis. We will come out the other side of it. We have the economic and social capabilities that will pull our country through. This Government, the next Government and the Dáil can and will make decisions that will get our citizens back to work, that will help small businesses reopen and that will get trade flowing again. The State will be stronger, more resilient and have greater capacity, which I am sure will be needed, to meet the needs of our society as a result. That recovery will take time, determination and significant resources. It will involve difficult decisions but we can rebuild our economy. When we consider the alternatives to the measures we have undertaken we quickly realise the value of a caring society. The Government acted quickly and decisively in the interests of all of our people. This intent was supported and strengthened by the House. I have made the point on many occasions that I am the Minister for Finance of an economy within a society and not a society within an economy. As we have seen in recent weeks, Ireland is more than just an economy, it is a society. The stability programme update provides the backdrop against which decisions to protect and renew both will be made.
