The Irish Times view on the economic outlook: Covid’s long-lasting damage
Failure to reach an EU-UK trade deal would further cloud the prospects for a post-Covid recovery in 2021
A return to growth in the domestic economy is a welcome prospect after a year which saw a record collapse in consumer spending during the first lockdown and widespread damage to businesses and those out of work. Photograph: Leah Farrell/RollingNews.ie
It can be difficult, in the midst of fears of further lockdowns and uncertainty over Brexit, to look beyond this to the economic outlook for 2021. Last week’s quarterly commentary from the Economic and Social Research Institute (ESRI) attempted to do this, pointing to the possibility of a strong bounce in activity in the second half of next year, as the roll-out of Covid-19 vaccines cuts the risk of further restrictions on economic activity. A return to growth in the domestic economy is a welcome prospect after a year which saw a record collapse in consumer spending and widespread damage to businesses and those out of work. Extensive Government support programmes limited the damage – and were the correct policy response. However, while growth may resume as the worst of the pandemic passes, serious damage will inevitably remain.
Judging the real level of unemployment is difficult. Many people on the Pandemic Unemployment Payment will return to work. Some jobs currently supported by the wage subsidy scheme may be lost. But whatever way you count, it is clear that we enter 2021 with a serious unemployment problem. Even on an optimistic scenario, the ESRI estimates that the unemployment rate may end next year at 10 per cent.
Many of those out of work are younger people who were employed in sectors such as accommodation, tourism and retail. The PUP has protected their incomes to some extent, but their prospects are now deeply uncertain. The damaged sectors will take years to recover and changes to the way we spend, shop and travel are likely to have a lasting impact. There is a need for policy to prioritise support for this group through labour market and support policies; retraining and reskilling will be needed to ensure people have skills appropriate for the jobs likely to be available.
And then there is Brexit. This threatens to hit other sectors of the economy, particularly food and farming, and to have a wider economic effect on consumers and confidence. Failure to reach a deal would cloud the prospects for a post-Covid recovery in 2021.