Due to the success of our vaccination programme earlier this year, restrictions were eased with the domestic economy recovering strongly as a result. Modified Domestic Demand (MDD) – the best measure of domestic economic activity now exceeds the level immediately preceding the pandemic (2019-Q4) by around 3 per cent. Improvements can also be seen in the labour market with the unemployment rate including PUP recipients now below 7 per cent, the lowest rate since the onset of the pandemic.
Looking forward, early indications point towards an easing in growth rates in the domestic economy in the fourth quarter. Part of this is the continued adjustment in growth towards pre-pandemic trends with re-opening effects and pent-up demand tapering off. Clearly, any further deterioration in the current epidemiological situation that results in the re-introduction of significant restrictions would hamper the economic recovery. However, with our booster campaign ramping up, and nearly a third of those who are fully vaccinated having now received a third jab, I am confident that, once we overcome the fourth wave of the virus, our economy will strengthen.
The rapid rebound in domestic economic activity however has also been accompanied by rising inflationary pressures. However, this recent rise in inflation is partly explained by global factors, many of which are expected to ease over time but may prove persistent. Needless to say, significantly higher inflation next year would have significant impacts on the wider economy and public finances. My Department will therefore continue to monitor inflationary developments closely and respond as appropriate.
Over the longer term, thanks to the strength of our economic model, including our well educated work force and pro-enterprise culture, I believe our economy will remain resilient to future economic shocks. However, we have borrowed heavily to provide support to the economy and minimise the negative effects of the pandemic. While such a counter-cyclical approach was both appropriate and necessary, the ongoing cost is significant. Going forward the Government will return our public finances to a more sustainable position, this will help us re-build our fiscal buffers and help us to withstand future economic shocks.