[ad_1]
The Institute for Economic and Social Research has forecast that the economy will end up growing by 3.4% this year, despite record unemployment.
In its latest quarterly economic commentary, the think tank said that the exports of pharmaceutical and IT companies have remained strong, but the impact of Covid-19 will affect the national economy for some time.
ESRI described its forecast as “somewhat surprising” and comes when official government projections point to a 2.4% decline in GDP.
Driven by exports of pharmaceuticals and IT services, the economy has continued to grow and consumer spending has recovered.
But it is an uneven picture.
ESRI believes that unemployment will end this year at 20%. Even with a post-Brexit trade deal, it will average 14.5% next year.
This is because sectors such as accommodation, the arts and parts of retail continue to struggle and are unlikely to recover until the second half of next year.
The ESRI also warned that the incoming Biden administration in the US may announce changes to international corporate tax rules. This could reduce tax collection here.
Pharmaceuticals and chemicals together account for just over two-thirds of the value of Ireland’s goods exports.
The demand for these products has increased by 18% compared to last year.
We need your consent to upload this rte-player contentWe use rte-player to manage additional content that can set cookies on your device and collect data about your activity. Review your data and accept it to load the content.Manage preferences
The demand for IT services from abroad has also been strong. Computer services account for almost half the value of services exports.
The value of exports has a great impact on how GDP is measured.
Thus, even as consumer demand fell dramatically (close to 20%) during the depth of the Covid restrictions and unemployment soared to 30%, the economy measured by GDP continued to advance.
It was also helped by a large rebound in consumer spending over the summer.
This has helped mitigate the impact of Covid on the public purse by reducing the impact on income tax collection.
But as ESRI points out, it does mean that Ireland’s economy is exposed to the fate of a small number of companies in a small number of industries.
The same goes for our corporate tax collection. It now represents about a fifth of our taxes.
But only ten companies account for 40% of the stake and 77% of them are foreign multinationals, according to an analysis by Revenue earlier this year.
On that front, ESRI warns that changes may come with the incoming Biden administration.
Bloomberg reports that American economist Brad Setser, who has written extensively on the tax practices of American multinationals in Ireland, has joined Biden’s transition team.
ESRI expects the Biden administration to take a more “globalized” approach to international corporate tax rules than the outgoing Trump administration. This may mean that Ireland’s corporate tax revenue will decline in the future.
ESRI forecasts that the economy will grow 4.9% next year.
It has taken into account a six-week level 5 lockdown sometime in the first half of 2021. It also does not expect a widespread launch of a Covid vaccine among the general population until the second half of the year.
For that reason, he expects unemployment to remain high, averaging 14.5%.
Their forecasts assume that a post-Brexit trade deal will be agreed.
However, if not, growth could be reduced to just 1.5%.
Regardless of whether a deal is reached or not, ESRI expects consumer prices of goods to rise as a result of the UK’s exit from the EU.
Meanwhile, the scale of the economic impact is much more severe during the current Covid-19-induced crisis than that experienced during the financial crisis just over a decade ago.
However, the economy appears to have recovered more quickly this time.
That is the conclusion of the Institute for Economic and Social Research (ESRI) in a research paper comparing the two economic shocks published today.
He points out that during the Great Financial Crisis, the blow to the economy was more gradual and prolonged.
ESRI said that one of the most significant differences between the two periods has been the political response at both national and European levels.
The Covid-19 crisis was marked by a swift response from the European Central Bank and the European Commission in the form of a massive stimulus program providing cheap loans to banks and businesses and a bond purchase program to keep borrowing costs low. of governments.
The government responded with a significant deficit this year to support businesses and revenues from shutting down much of the service economy for extended periods.
He plans to continue that spending and run another deficit in the next year.
The last recession, by contrast, was characterized by years of austerity in which public spending fell dramatically in the direction of the troika of lenders: the European Commission, the ECB and the IMF.
“The scale and speed of the negative impact are much more severe during the current crisis, while the recovery appears much faster than that of the GFC (Great Financial Crisis),” said ESRI report author Petros Varthalitis.
“These differences can be attributed to the nature of the two shocks, but also to significant differences in the way the authorities have responded to both crises,” he added.
The Minister of Finance believes that the economy will register record growth
Finance Minister Paschal Donohoe has said that he now believes the economy will register positive growth this year.
The Minister was responding to ESRI’s forecast.
At budget time, the Finance Department forecast that the economy would contract by 2.4% this year.
However, the Minister said that the Department would not update its forecast “at this point in the year” and that there was “a gap” between what ESRI has forecast and what the Department believes will happen to the economy in the last three months. . of this year.
The minister also said that the high levels of unemployment in ESRI’s forecasts do “corroborate” his department’s vision and that this would present not only an economic challenge but with social consequences next year.
The Minister also revealed at today’s press conference that to date, 15,300 companies have made claims worth 111 million euros under the Covid Restrictions Program (CRSS).
The plan was launched in October.
[ad_2]