The European Commission’s Spring forecasts predict that the Irish economy is set to contract by 8% year on year (yoy) in 2020 before recovering somewhat with growth of 6.1% yoy in 2021.
Highlighting the widespread hit to euro area’s growth, every member state’s economy is forecast to contract by at least 5% in 2020 and by over 9% in Italy and Spain. The forecast for the bloc, with tilts to the downside, is a 7.7% contraction in 2020 resulting in “a recession of historic proportions this year”.
The wider EU is set to experience a similar GDP decline. On the labour market, the unemployment rate will increase from 7.5% to 9.6%, which may prove to be overly optimistic. In Ireland, the rate is forecast to increase 7.4% in 2020.
Early estimates point to an upper range in the unemployment rate as high as 29% in Ireland, up from 4.8% yoy in February, depending on how many on temporary unemployment support are classified as unemployed.
Just under 600,000 people have signed up for the pandemic unemployment payment since the scheme was set up in the latter half of March. Ireland’s modest budget surplus recorded in 2019 (0.4% of GDP) is set to go to a large budget deficit (5.6% of GDP). Goodbody Stockbrokers early estimates put the budget deficit in 2020 at least at 10% of Gross National Income.
According to Goodbody Stockbrokers, "The European Commission’s forecasts highlight the asymmetric impact of the COVID-19 with the way the bloc’s members will emerge from lockdown measures dependent on the severity of the pandemic, the stringency of their containment efforts and on their specific economic exposures. With a vaccine likely to be more than a year away, the EC’s forecasts may prove to be overly optimistic."