Approaching the pandemic, Ireland was in a strong macroeconomic position, with robust economic growth in recent years and an improved fiscal position. While the effects of Covid-19 and Brexit are expected to be severe, these factors support the enduring competitiveness of the Irish economy.
The Stability Programme Update (SPU) published in April this year projected a sharp decline in GDP in 2020. This decline will be particularly evident in the labour market, where an unemployment rate of over 15 per cent was recorded in August. As was announced on the 16th of September, Budget 2021 will be framed along the assumption of a disorderly Brexit in January 2021, which will further negatively impact the Irish economy.
While the domestic sector suffered a severe hit in the second quarter this year, the multinational sector has proven resilient demonstrating the competitiveness of Irish exports on world markets.
As the global economy is experiencing the shock of the Covid-19 pandemic in a reasonably symmetric way, Ireland’s relative competitiveness on the international stage is not expected to be significantly affected. The recent series of external surpluses in Ireland’s modified current account is expected to continue. The pandemic has put downward pressure on prices meaning significant inflationary pressures are not expected to impact competitiveness in the short to medium term. The 2020 IMD World Competitiveness Yearbook recently ranked Ireland as the 4th most competitive country in the EU and the 12th most competitive country in the world.
The extent of the recovery over the short to medium term will be a function of many factors, including the path of the virus, the future availability of a vaccine, and the success of containment measures, both domestically and abroad, as well as the future trading relationship with the UK.