The Republic’s “resilient” economy will be among the best-performing in the western world this year with GDP growth of 0.8 per cent, before accelerating to export-driven growth of 5.3 per cent in 2021, according to updated forecasts from Ibec, the employers’ lobby group.
In its latest quarterly report Ibec predicts that the economy will “recover lost momentum rapidly” over the next year or two as coronavirus vaccines are quickly rolled out and an expected last-minute trade deal with the UK reduces the negative impact of Brexit.
“Strong export performance will be the central pillar of the economic recovery,” said Ibec, which hailed Ireland’s strength in key high-performing exports sectors such as pharmaceuticals and IT services.
Ibec predicts that the post-virus economy will rebound much faster this time round when compared to the last financial crisis, primarily because of the lower levels of debt being carried by businesses and households.
It also suggests that if a wall of household savings – they put away €11 billion in the year to October, twice as much as the previous year – can be released into the economy, then 2021 “could be an extraordinarily strong year for consumer spending”.
Ibec described the record levels of household savings as holding buying power akin to “the SSIA levels of the mid-2000s”, a reference to the deluge of consumer spending spurred in part by the boom-era maturation of hundreds of thousands of State-backed special savings incentive accounts (SSIAs).
Ibec says unemployment should fall from its current level of about 18.2 per cent to 6.5 per cent by the end of next year.
The employers’ group is forecasting that consumer spending will grow 15.1 per cent compared to pandemic-hit 2020, or about 1.3 per cent ahead of where spending was in 2019. This will follow a predicted 12 per cent decline in consumer spending in 2020.
The employers’ group highlights the risk to the economy from a potentially unruly Brexit next month, but suggests it would be “untenable” and that even if it happens, it should only be temporary because the scale of the disruption would bring both sides back to the negotiating table to finalise a deal.
“The prospect of there not being a deal in the medium-term is a non-credible scenario,” Ibec said.
The report suggests that Irish consumers were more resilient in their spending in the second lockdown between October and this month than they were during the original shutdown in the spring.
"The 'experience economy' and large parts of the retail sector have been significantly disrupted by public health restrictions. However, most of our economic sectors have shown significant and growing resilience during the crisis," said Gerard Brady, chief economist of Ibec.
The lobby group forecasts pay rises averaging 2.6 per cent in 2020 and again in 2021 for those staff working at the roughly half of all Irish companies that are planning to implement pay increases.
Inflation is expected to tick up to 1.2 per cent, driven in part by increased public spending.
“A permanently bigger state across the developed world may be the long-term impact of the pandemic,” said Ibec.