The European Commission’s Autumn 2020 Economic Forecast was released yesterday and shows Ireland’s economy is projected to contract by 2.25% in 2020, before growing by 3% in 2021 (recovering 2019 levels) and by 2.50% in 2022.
Modified domestic demand, which better reflects the underlying domestic economy, is expected to fall by 6.50% in 2020 and grow by 7.25% in 2021 and 4.25% in 2022.
The European Commission finds that Ireland’s domestic economy was hit severely by the pandemic control measures in the first half of the year but strong exports by multinationals cushioned the fall in real GDP.
Employment has been shielded by state income support schemes. The economic contraction and the substantive fiscal stimulus are expected to significantly widen the budget deficit. Risks to the outlook remain exceptionally high, the European Commission warns.
The report projects that the euro area economy will contract by 7.8% in 2020 before growing 4.2% in 2021 and 3% in 2022. The forecast projects that the EU economy will contract by 7.4% in 2020 before recovering with growth of 4.1% in 2021 and 3% in 2022.
Compared to the Summer 2020 Economic Forecast, growth projections for both the euro area and the EU are slightly higher for 2020 and lower for 2021. Output in both the euro area and the EU is not expected to recover its pre-pandemic level in 2022.
According to the European Commission, "Economic activity in Europe suffered a severe shock in the first half of the year and rebounded strongly in the third quarter as containment measures were gradually lifted, the forecast points out. However, the resurgence of the pandemic in recent weeks is resulting in disruptions as national authorities introduce new public health measures to limit its spread. The epidemiological situation means that growth projections over the forecast horizon are subject to an extremely high degree of uncertainty and risks."