Up to 100,000 people will permanently lose their jobs as a result of the pandemic, the Central Bank has warned.
Despite the dismal outlook for employment, the regulator upgraded its growth forecast for the economy to nearly 6 per cent, citing improved economic conditions globally and US president Joe Biden’s $1.9 trillion stimulus plan, both of which are expected to boost exports.
In its latest quarterly bulletin the Central Bank said it expected unemployment to remain elevated even after restrictions have been eased.
Changed consumer preferences and work practices would lead to permanent declines in certain consumer-facing sectors, "and that's where you're going to get long-term unemployment", the bank's director of economics and statistics Mark Cassidy said.
“Of the current 445,000 people on the Pandemic Unemployment Payment (PUP) we think all but around 80,000 to 100,000 will return to work very quickly [once the restrictions are lifted] and that will be the extent of the more lasting damage,” he said.
The Covid-adjusted unemployment rate, which includes PUP recipients, currently stands at 24.2 per cent. When combined with the Government’s employment wage subsidy scheme (EWSS), this means 960,000 people, around four in 10 in the labour force, are currently in receipt of one form of income support or other.
The Central Bank said it expected unemployment to remain elevated at 8 per cent next year, and that it would be 2023 or 2024 before the labour market fully recovers from the pandemic.
In its report the regulator said the outlook for the economy in the first half of 2021 remained subdued, “with both the duration of Level 5 restrictions more prolonged and the relaxation of restrictions now likely to be more gradual”.
However, assuming the successful deployment of vaccines, it expects a sharp pick-up in activity in the second half of the year driven by stronger domestic demand and multinational exports.
As a result it upgraded its growth forecast for the economy this year to 5.9 per cent, up from a previous forecast of 3.8 per cent, and to 4.7 per cent for 2022.
“The high level of savings that have been accumulated over the the past year as well as improving consumer and business sentiment will support stronger domestic demand [in the second half of 2021],” Mr Cassidy said, noting that an additional €15.7 billion had been placed on deposit by Irish households in the past 12 months.
The Central Bank has calculated than €10 billion of this can be classified as “excess savings”, and that based on previous spending patterns about €5 billion is likely to flow back out into the economy as additional spending once the restrictions are lifted. This would act as stimulus to recovery, Mr Cassidy said.
On the downside, trade frictions from Brexit would continue to affect growth and household consumption, the Central Bank said, adding that both Brexit and the pandemic added a high degree of uncertainty to its forecasts.
While the rise in deficit and debt ratios that has occurred as a result of pandemic-related spending has been “both warranted and necessary”, these would have to be tackled at a later date.
It estimated that the Government’s total Covid bill – its spending on supports and health measures – would amount to €32 billion by the end of this year.
“In the near term fiscal policy must remain focused on supporting household incomes and firm liquidity to provide the most solid basis for recovery,” it said.
“However, the size and nature of support should be ready to adapt to changing circumstances. Ultimately, more favourable growth dynamics in coming years should support a decline in the public debt ratio.”