The bounce back from coronavirus will be stronger and quicker, according to the Economic and Social Research Institute (ESRI).
In its latest economic commentary, the think tank predicts growth this year will be 11 per cent. This is more than twice the Government’s 4.5 per cent forecast.
The more upbeat assessment is based on stronger than expected exports – they are expected to rise by a 13 per cent this year – and a resurgence in consumer spending predicated on the unwinding of savings.
Approximately €16 billion had been placed on deposit by Irish households in the past 12 months.
The Central Bank classifies about €10 billion of this as "excess savings"– in other savings that wouldn't have occurred in normal circumstances. Based on previous spending patterns about €5 billion is expected to flow back out into the economy as additional spending once the restrictions are lifted. This will act as stimulus to recovery, driving domestic demand.
The ESRI, however, warns that recovery is likely to be uneven and focused on those goods and services which households have been constrained from consuming. “It is therefore likely that many of the retail sales areas which are currently operating well below pre-pandemic levels [bars, restaurants, clothing and footwear, department stores] are likely to experience notable increases in expenditure as the economy begins to recover,” it said.
In output terms, the ESRI believes we’ll be back at pre-pandemic levels by as early as next year, much quicker than initially thought. We can’t quite label this a V-shaped recovery, however, as it runs alongside an elevated level of unemployment that’s likely to remain two or three percentage points above the pre-coronavirus level for some years to come.
The other scarring impact will be fewer homes. The ESRI believes the hiatus in construction at the start of 2021 will result in just 18,000 homes being built this year, 3,000 less than last year and 12,000-17,000 less than the estimated level of demand in the market.
