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FINANCE MINISTER PASCHAL Donohoe has said the launch of the vaccine will be the most important determining factor in the recovery of the Irish economy this year and next.
The minister said the correlation between the launch of the vaccine and the ability of companies to reopen is crucial, as he also highlighted the government’s hopes that any money saved by people during the pandemic will remain in this country.
He said the government was “looking for ways” to do this, but acknowledged that people spend it on vacations abroad.
Donohoe spoke to reporters after a virtual meeting of finance ministers from the Eurogroup yesterday, of which he is the current president. The Eurogroup had received an update on the Covid-19 situation from Dr. Mike Ryan and Dr. Bruce Aylward from the World Health Organization.
In a statement after the meeting, Donohoe said a European Commission forecast had predicted that economic growth would resume in the spring of this year on the premise of a gradual reopening of euro zone economies.
When asked about this this afternoon, Donohoe said he believes this assumption is correct because it involved a “very gradual” reopening.
He added that in the fourth quarter of last year, when countries reintroduced severe restrictions, economies did not fall as much as they did during the first lockdown.
“It does indicate that employers in different parts of the European economy became more adept at keeping their businesses viable and operational, while also adhering to public health guidelines,” he said.
In its quarterly economic bulletin released last month, the Central Bank of Ireland forecast an “improved outlook” for the second half of 2021. The report said there could be “a potential increase in demand” as a result of the vaccination program that enables the relaxation of public health restrictions.
Donohoe said he was “very encouraged” by Ireland’s early vaccination program, adding that “we will vaccinate many, many of our citizens at high speed” when our vaccine stock increases.
He said the surge in demand referred to by the Central Bank is partly related to the savings people have made during the pandemic, but added that reopening businesses is a much more important aspect of how vaccines should help the economy.
It is the correlation between a vaccination program and the ability of an economy to open up that I believe will be the biggest driver of economic performance in 2021 and 2022, rather than releasing savings into our economy.
Donohoe also dismissed concerns that there would be a gap in the speed of reopening on both sides of the border due to the rapid pace of the vaccine launch in Northern Ireland.
He said he believes most governments, including the UK, will “take a cautious approach” to reopening.
Savings
On the issue of savings, Donohoe said the Central Bureau of Statistics has provided estimates of the value of savings within our economy that have reached “between 28-30% of the value of all income within our economy.”
“So it was a huge increase in savings, driven by our success in protecting income and also driven by the opportunities of not being there to spend the savings the way they normally are there,” he said.
When asked if these savings could boost demand in the housing sector, for example, the minister said that he envisioned some of them being used by people going on vacation, but that the government would hope to encourage spending that ” it would benefit our economy. ”
If that money is spent, for example, on buying imports, we benefit from a fiscal point of view, but other economies benefit from a transactional point of view. If public health restrictions were to change and travel outside of Ireland was allowed, I would imagine that some of the savings that were booked by people unable to vacation outside of Ireland would be used at that time.
“Certainly, we will seek all the ways that come our way to provide opportunities for that spending to be used in a way that benefits our economy,” he said.
The minister added that the government would hope that Irish exporters could benefit in a similar way if people spend their savings abroad.
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Government supports
The government’s main Covid-19 trade supports, the Employment Wage Subsidy Program (EWSS) and the Covid Support Restrictions Scheme (CRSS), are in effect until at least the end of March and Donohoe has said “no no formal decision has been made. ” still in extending them.
However, he said support is likely to remain in place as long as public health guidance forces companies to close.
“We will make a decision on these policies soon enough because, particularly in relation to the Wage Subsidy Plan, I know that employers right now need guidance on what the level of funding will be as we move into the period before the summer. And I know that in the absence of that kind of guidance, I will make things even more difficult for them. “
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