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A successful Covid-19 vaccine rollout should see the Irish economy recover in the second half of the year, the governor of the Central Bank has said.<\/p>\nA successful Covid-19 vaccine rollout should see the Irish economy recover in the second half of the year, the governor of the Central Bank has said.<\/p>\n
An ESRI report last month found that the impact of the Covid-19 crisis has been much \u201cmore severe\u201d on the Irish economy than that of the global financial crisis in 2008.<\/p>\n
But in a virtual address to staff and students at the University of Limerick, Gabriel Makhlouf said the economic forecast for late 2021 is positive.<\/p>\n
He said: \u201cOur latest economic analysis and forecasts suggest that while we must weather the lockdown \u2013 and subdued output \u2013 for another while yet, come the second half of the year, and assuming a successful deployment of the vaccine, the economy should begin to recover.<\/p>\n
\u201cSupported by strong government income support measures, we forecast modified domestic demand to increase by 2.9 per cent this year, following an estimated decline of around 7.1 per cent in 2020.<\/p>\n
\u201cWe see a further rise in modified domestic demand of 3.6 per cent in 2022.<\/p>\n
\u201cBut of course, this remains contingent on key assumptions regarding Covid-19 developments.\u201d<\/p>\n
Mr Makhlouf said the resilience of the financial system and the economy had been key in mitigating the impact of the pandemic.<\/p>\n
He said the financial system has been able to absorb rather than amplify the effects of the shock.<\/p>\n
Mr Makhlouf added: \u201cThe Government has had significant resources available to respond to the pandemic, with the rise in the deficit and debt ratios both warranted and necessary.<\/p>\n
\u201cPolicy has been in a position to support the productive capacity of the economy and in particular to avoid scarring effects such as long-term unemployment.\u201d<\/p>\n
But he warned that recovery in the jobs market will lag behind the broader economic recovery.<\/p>\n
The recovery in the labor market is likely to lag somewhat<\/p>\n
He said: \u201cUnfortunately for many people in the community, the recovery in the labor market is likely to lag somewhat until the broader economic recovery is better established.<\/p>\n
\u201cWe estimate unemployment is likely to increase from 6.2 per cent in 2020 to an average of 9.3 per cent this year, before declining to 7.8 per cent in 2022, a rate well above the pre-pandemic level of about 5 per cent.<\/p>\n
\u201cThough high, for comparison, the unemployment rate peaked at just over 16 per cent in 2011\/2012 following the crisis a decade ago.<\/p>\n
\u201cIt will take time to regain pre-pandemic levels of employment. For that to happen, either sectors which were most affected by the pandemic will have to recover fully, or other sectors will have to grow faster in order to absorb the excess labor capacity.\u201d<\/p>\n
Looking ahead, Mr Makhlouf said: \u201cAll of our work will of course be dominated by our ongoing focus on the pandemic.<\/p>\n
\u201cWe will continue to deepen our understanding of its impacts and take any necessary steps to enable the financial system to support the recovery.\u201d<\/p>\n