In the Stability Programme Update (SPU), published in April this year, my Department projected that GDP would decline by 10.5 per cent this year. The central scenario underpinning the SPU projections was one in which containment measures were assumed to remain in place for approximately three months, resulting in a very sharp contraction in the latter weeks of the first quarter and most of the second quarter. Thereafter, a very gradual recovery commencing in the third quarter was assumed reflecting a gradual easing of containment measures and the assumption that a vaccination is available before next year. There is likely to be some upside to these projections on the back of stronger than expected growth in the first quarter, and an earlier than expected re-opening as a result of the progress in suppressing the virus. As the economy continues to re-open, the extent of the recovery over the second half of this year and into next year will be a function of several factors, including the epidemiology of the virus, the success of containment measures, and the global economic outlook, of which there is considerable uncertainty.
At this stage it is clear that the economic impact of Covid-19 has not been the same across all sectors of the economy. Though the majority of economic activity has now resumed, it is likely that the services sector of the economy – much of which relies upon close physical interaction with consumers – has been and will continue to be the most severely impacted. In particular, activity in the retail, hotels, restaurants and arts sectors is likely to experience a severe decline as a result of being closed during the second quarter of the year. Though many of these businesses have reopened from the onset of Phase 3 on the 29th June, they will do so at reduced capacity to ensure compliance with public health guidelines. There may also be changes in consumer preferences due to concerns relating to virus transmission, resulting in lower demand for these services. The recovery in these sectors is therefore likely to be gradual and it is expected that aggregate economic activity will not reach its pre-COVID level until 2022.
The Government’s policy response to the economic impact of the pandemic has been swift, including the introduction of the Pandemic Unemployment Payment and the Temporary Wage Subsidy Scheme to cushion the blow to people’s incomes and maintain the vital link between employers and employees, helping people to return to work as soon as possible once the worst of the crisis has passed. Indeed, in the forthcoming July Stimulus Package and the National Economic Plan, to be published alongside the Budget in October, the Government will demonstrate its commitment to bringing Ireland out of the worst of this economic downturn. Getting people back to work will be a top priority in this regard.