Lockdowns leave Irish with extra €9bn to spend in 2021

Shoppers could spend an extra €9 billion next year as they tap into cash hoarded through the Covid-19 crisis, economists predict.

The Economic and Social Research Institute (ESRI) estimates in a report published on Thursday that a sharp fall in spending prompted by Covid-19 lockdowns boosted savings this year to about €25.5 billion.

Economists at the institute predict that consumer demand will bounce back sharply through next year as people get vaccinated, leading to an easing of public health restrictions designed to contain the pandemic.

Ahead of the report’s publication, Kieran McQuinn, research professor, predicted that the level of savings could fall from €25.5 billion to €16.8 billion next year, implying that consumers are likely to spend €8.7 billion.

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The predicted spend could help the economy grow by 4.9 per cent next year, if the EU and UK strike a deal on Brexit. However, if there is no agreement, the Republic’s wealth will increase by about 1.5 per cent in 2021, the report calculates.

However, unemployment is likely to remain high throughout next year, running at around 15 per cent, and is likely to be around 10 per cent in 12 months’ time, meaning approximately 240,000 people will be out of work.

The ESRI’s Quarterly Economic Commentary – Winter 2020, published on Thursday, notes that research already shows that the savings now held by families in the Republic could help boost the economy next year.

“With an effective vaccine becoming available in the second half of 2021, a strong recovery in consumption can be expected as households unwind excess savings,” the report states.

Slumped

Consumption slumped 20 per cent in the three months to June 30th, the second quarter of the year, which included a severe pandemic lockdown that shut all but essential businesses, the institute’s experts say.

“However, the resumption of economic activity in the third quarter of 2020 led to a rapid rebound in spending, with consumption down approximately 5.7 per cent year-on-year in quarter three 2020,” their commentary notes.

At the same time, incomes have not fallen at the same rate as spending, boosting household savings.

The further, less severe lockdown imposed by the Government at the end of October is likely to have sparked a further decline in spending for that period, but the economists say that this will have been less marked than in the spring.

The report states that the UK’s departure from the EU on January 1st could hit the rate at which people start spending again, but is unlikely to prevent an increase in consumption.

Under a "no-deal" Brexit, spending could increase next year by 10.7 per cent, the institute's report states. If there is a deal, consumption could rise by 11.7 per cent, say authors Kieran McQuinn, Conor O'Toole, Matthew Allen-Coughlan and Cathal Coffey.