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Budget 2021: Macroeconomic outlook
Presentation to Irish Fiscal Advisory Council
Economics Division, Department of Finance
25th September 2020
2 An Roinn Airgeadais | Department of Finance
Birds-eye view
• Recent developments
• Post-lockdown macro-economic developments
• Forecast framework and methodological approach
• DoF short-term forecasts
• Overview of supply-side developments
• Conclusion
3 An Roinn Airgeadais | Department of Finance
Recent developments
4 An Roinn Airgeadais | Department of Finance
Truly global symmetric shock
“Two-speed” economic impact, q/q per cent changeRecord GDP fall in key trading partners, q/q per cent change
-23%
-18%
-13%
-8%
-3%
2%
Q1/2
019
Q2/2
019
Q3/2
019
Q4/2
019
Q1/2
020
Q2/2
020
United States
Euro area
United Kingdom
- 9%
-20%
-12%
-23
-18
-13
-8
-3
2
20
19
Q4
20
20
Q1
20
20
Q2
GDP MDD
Export portfolio
Source: a) Macrobond b) CSO
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
5 An Roinn Airgeadais | Department of Finance
Domestic demand vs. external demand
-10
-5
0
5
10
15
20
201
9M
01
201
9M
02
201
9M
03
201
9M
04
201
9M
05
201
9M
06
201
9M
07
201
9M
08
201
9M
09
201
9M
10
201
9M
11
201
9M
12
202
0M
01
202
0M
02
202
0M
03
202
0M
04
202
0M
05
202
0M
06
202
0M
07
F&B Core M&E Chem Other Core goods
Contributions to ‘core goods’ export growth (y-on-y, 3MMA)
-20
-15
-10
-5
0
5
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2014 2015 2016 2017 2018 2019 2020
C G B&C Other modified investment MDD
Q2: modified domestic demand = -16 per cent
Source: a) CSO b) CSO
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
6 An Roinn Airgeadais | Department of Finance
Exports proving resilient (so far) to fall in external demand
Contributions to Irish exportsGDP – modest revisions in key trading partners
-13.5
-11.5
-9.5
-7.5
-5.5
-3.5
-1.5
0.5
2.5
2020 (OECD June) 2020 (OECD September)
United Kingdom Euro Area United States
+3.5%+1.4% +1.2%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2
Computer services
Other services
Pharma-chem
Other goods
Total exports
Source: a) OECD b) CSO
7 An Roinn Airgeadais | Department of Finance
Fall-out in the labour market unprecedented
Unemployment rate, per cent = highest level ever [c. twice GFC rate]Change in employment levels (000’s, y/y)
-600
-500
-400
-300
-200
-100
0
100
200
12Q
1
12Q
2
12Q
3
12Q
4
13Q
1
13Q
2
13Q
3
13Q
4
14Q
1
14Q
2
14Q
3
14Q
4
15Q
1
15 Q
2
15 Q
3
15 Q
4
16 Q
1
16 Q
2
16 Q
3
16 Q
4
17 Q
1
17 Q
2
17 Q
3
17 Q
4
18 Q
1
18 Q
2
18 Q
3
18 Q
4
19 Q
1
19 Q
2
19 Q
3
19 Q
4
20 Q
1
20 Q
2
COVID-adjusted
[ headline figure includes those on PUP who
as classified as employed under ILO definition ]
Source: a) & b) CSO
17.3% Dec 1985
4%June 2001
Peak = 16% Feb 2012
29.1% April 2020
15.4%Aug 2020
0
5
10
15
20
25
30
35
Jun-8
3
Jun-8
4
Jun-8
5
Jun-8
6
Jun-8
7
Jun-8
8
Jun-8
9
Jun-9
0
Jun-9
1
Jun-9
2
Jun-9
3
Jun-9
4
Jun-9
5
Jun-9
6
Jun-9
7
Jun-9
8
Jun-9
9
Jun-0
0
Jun-0
1
Jun-0
2
Jun-0
3
Jun-0
4
Jun-0
5
Jun-0
6
Jun-0
7
Jun-0
8
Jun-0
9
Jun-1
0
Jun-1
1
Jun-1
2
Jun-1
3
Jun-1
4
Jun-1
5
Jun-1
6
Jun-1
7
Jun-1
8
Jun-1
9
Jun-2
0
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
8 An Roinn Airgeadais | Department of Finance
Weak sentiment = precautionary saving
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
0
20
40
60
80
100
120
01/2
019
02/2
019
03/2
019
04/2
019
05/2
019
06/2
019
07/2
019
08/2
019
09/2
019
10/2
019
11/2
019
12/2
019
01/2
020
02/2
020
03/2
020
04/2
020
05/2
020
06/2
020
07/2
020
08/2
020
Consumer (lhs)
Industry (rhs)
Services (rhs)
500000
550000
600000
650000
700000
750000
2017 2018 2019 2020
Source: a) KBC & DG ECFIN, b) CBI
Consumer & business sentiment Cumulative change in household deposits, February to July, € million
9 An Roinn Airgeadais | Department of Finance
Post-lockdown macro-economic developments
10 An Roinn Airgeadais | Department of Finance
Ultra-high frequency / real-time data confirm rebound in q3
Number of cars on Irish roads
Source: a) TII and b) Revolut
Daily Revolut transactions vs daily new infections (7 day ma)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0
100
200
300
400
500
600
700
800
900
1000
07/0
2/2
020
21/0
2/2
020
06/0
3/2
020
20/0
3/2
020
03/0
4/2
020
17/0
4/2
020
01/0
5/2
020
15/0
5/2
020
29/0
5/2
020
12/0
6/2
020
26/0
6/2
020
10/0
7/2
020
24/0
7/2
020
07/0
8/2
020
21/0
8/2
020
04/0
9/2
020
18/0
9/2
020
Daily New Cases, 7 Day MA Spending per user, Indexed 7 day MA
Level 3
restrictions
introduced in
Dublin
Schools
Close
Non-essential
movement
restricted
Re-opening Phases
1 2 3
Local
restrictions
in three
counties
introduced.
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
07/0
2/2
020
14/0
2/2
020
21/0
2/2
020
28/0
2/2
020
06/0
3/2
020
13/0
3/2
020
20/0
3/2
020
27/0
3/2
020
03/0
4/2
020
10/0
4/2
020
17/0
4/2
020
24/0
4/2
020
01/0
5/2
020
08/0
5/2
020
15/0
5/2
020
22/0
5/2
020
29/0
5/2
020
05/0
6/2
020
12/0
6/2
020
19/0
6/2
020
26/0
6/2
020
03/0
7/2
020
10/0
7/2
020
17/0
7/2
020
24/0
7/2
020
31/0
7/2
020
07/0
8/2
020
14/0
8/2
020
21/0
8/2
020
28/0
8/2
020
04/0
9/2
020
11/0
9/2
020
18/0
9/2
020
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
11 An Roinn Airgeadais | Department of Finance
‘Unofficial data’ broadly confirmed by ‘official data’
Unemployment / under-employment falling but v. highRetail sales [=goods] suggest release of pent-up demand
0
20
40
60
80
100
120
Jan-2
0
Fe
b-2
0
Mar-
20
Apr-
20
May-2
0
Jun-2
0
Jul-20
January
2020 =
100
Schools close
12th March
Full lockdown
27th March
Phase 1
18th May
Phase 2
8th June
Phase 3
29th June
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
23-M
ar
30-M
ar
06-A
pr
13-A
pr
20-A
pr
27-A
pr
04-M
ay
11-M
ay
18-M
ay
25-M
ay
01-J
un
08-J
un
15-J
un
22-J
un
29-J
un
06-J
ul
13-J
ul
20-J
ul
27-J
ul
03-A
ug
10-A
ug
17-A
ug
24-A
ug
31-A
ug
07-S
ep
Pandemic Unemployment Payment Live Register TWSS (currently in receipt)
Phase 2
June 8thPhase 3
June 29thPhase 1
May 18th
Total = c. 800 K
peak = 1.2m
PUP = 206 K
(as of 21st Sept.)
LR = c.215 K
(as of mid-Sept.)
TWSS = 360 K
(as of end-Aug.)
Source: a) & b) CSO & DoF calculations
12 An Roinn Airgeadais | Department of Finance
Majority of firms trading normally but uncertainty remains high
Corporate deposits by quarter, € million
Source: a) CSO and b) CBI
63%
21%
11%
3%1%
1%
Trading at capacity
Trading at <50%
Trading at >50%
Ceased trading temporarily
Ceased trading permanently
Don't know
CSO Covid-19 Business Impact Survey Results, 27 July - 23 August
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
201
5Q
1
201
5Q
2
201
5Q
3
201
5Q
4
201
6Q
1
201
6Q
2
201
6Q
3
201
6Q
4
201
7Q
1
201
7Q
2
201
7Q
3
201
7Q
4
201
8Q
1
201
8Q
2
201
8Q
3
201
8Q
4
201
9Q
1
201
9Q
2
201
9Q
3
201
9Q
4
202
0 Q
1
202
0 Q
2
13 An Roinn Airgeadais | Department of Finance
Virus-resilience: Ireland and elsewhere
Re-introduction of restrictions in several EU MSUp-tick in infection rate in EU (no. infections per 100k, 7 day m.a.)
Source: a) ECDC and b) Oxford University
0
10
20
30
40
50
60
70
80
90
100
10fe
b2020
20fe
b2020
01m
ar2
02
0
11m
ar2
02
0
21m
ar2
02
0
31m
ar2
02
0
10a
pr2
02
0
20a
pr2
02
0
30a
pr2
02
0
10m
ay20
20
20m
ay20
20
30m
ay20
20
09ju
n20
20
19ju
n20
20
29ju
n20
20
09ju
l2020
19ju
l2020
29ju
l2020
08a
ug2020
18a
ug2020
28a
ug2020
07sep2
020
IE
lockdown stringency index for EU MS
0
5
10
15
20
25
01
/03
/20
01
/04
/20
01
/05
/20
01
/06
/20
01
/07
/20
01
/08
/20
01
/09
/20
IE
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
14 An Roinn Airgeadais | Department of Finance
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
19/0
1/2
0
12/0
2/2
0
07/0
3/2
0
31/0
3/2
0
24/0
4/2
0
18/0
5/2
0
11/0
6/2
0
05/0
7/2
0
29/0
7/2
0
22/0
8/2
0
15/0
9/2
0
EA
U.S.
U.K.
lockdowns deconfinement
Apple mobility indices for Ireland’s MTPs
Source: a) Apple & b) IHS Markit
Spilling over into real-time data
10
20
30
40
50
60
70
03/2
020
04/2
020
05/2
020
06/2
020
07/2
020
08/2
020
09/2
020
Euro Area
United Kingdom
United States
PMIs softening
Composite PMI, 50 = no change
15 An Roinn Airgeadais | Department of Finance
Forecast framework and methodological approach
16 An Roinn Airgeadais | Department of Finance
Budget 2021: key building blocks of forecast
• Forecast horizon: 2020 and 2021
: exceptional uncertainty
: medium-term projections in spring
• Key assumptions: no vaccination
- continued demand / supply constraints
: disorderly end to transition period- tariffs
- NTBs
- supply chains
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
17 An Roinn Airgeadais | Department of Finance
Methodological approach
• Calibration = challenging : no historical precedent for (1) pandemic or (2) IE-UK bilateral trade on WTO terms
• Construct initial ‘baseline’ forecast = no vaccine in 2021
: social distancing [ supply and demand effects ]
: heightened risk aversion / uncertainty [ impacting on savings and investment decisions ]
: take account of sector-specific [ +ve. and –ve. ]
: Brexit = limited FTA [ less benign than previous assumptions ]
• Layer-in disruption to EU-UK trade: “no-deal shock” treated as additive [ evidence base = DoF/ESRI ]
: First year impact mostly on traded side
• Consultation with third parties: Central Bank, IMF, ESRI on forecast approach and methodological issues
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
18 An Roinn Airgeadais | Department of Finance
Impact of no trade deal UK exit – medium term
95
100
105
110
115
120
2019 2020 2021 2022 2023 2024 2025
no brexitdeal baselineno deal
No deal = 3.8 per cent
below no Brexit
Counterfactual deal =
2.1 per cent lower
-5.0
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2021 2022 2023 2024 2025
No FDI
FDI
Net Impact2 year lag on FDI
Level would be 1.2 per
cent lower without FDI
GDP levels – 2019 = 100 GDP - pp difference to hypothetical no UK exit baseline
Source: a) & b) DoF and ESRI calculations
19 An Roinn Airgeadais | Department of Finance
Dual shocks: Covid and disorderly ‘Brexit’
Evidence base:
Examination of the sectoral overlap of COVID-19 and Brexit Shocks (Daly & Lawless, 2020)
Main Findings:
• Limited overlap in the sectors exposed to both Covid-19 and Brexit shocks
• Adding shocks together- broader range of at risk
- but sectors do not appear to be impacted by interaction effects
• Important: impacts likely to vary at firm level.
• SME revenue shortfall of €8-15bn by end-year- reduced capacity to absorb an additional shock?
Approach:
• Sectoral impact of both shocks
• Sectoral overlap
• Domestic supply chain interactions
20 An Roinn Airgeadais | Department of Finance
Sectoral impact of dual shock: evidence base
BREXIT
Green Amber Red Sum Covid-19 Sectors
CO
VID
-19
Green 7 10 6 23
Amber 2 11 5 18
Red 12 4 0 16
Sum Brexit Sectors 21 25 11 57
21 An Roinn Airgeadais | Department of Finance
DoF short-term forecasts
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
22 An Roinn Airgeadais | Department of Finance
Consumer spending: precautionary savings to remain high
Personal consumer spending, contribution to y/y % change Quarterly profile for consumption, 2020q1=100
3.2
-7.7
5.8
-8
-6
-4
-2
0
2
4
6
2019 2020 2021
Services
Goods
PCE
Source: a) & b), CSO & DoF projections
projections
80
85
90
95
100
105
2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4
No-Deal Deal - counterfactual
projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
23 An Roinn Airgeadais | Department of Finance
Uncertainty to curtail investment
Modified investment, contribution to y/y % change Quarterly profile for modified investment, 2020q1 = 100
1.2
-19.3
5.1
-20
-15
-10
-5
0
5
10
2019 2020 2021
B&C
Core M&E
Other Modified Investment
Modified Investment
projections
Source: a) & b) CSO & DoF projections
70
75
80
85
90
95
100
105
2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4
No-Deal
Deal counterfactual
projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
24 An Roinn Airgeadais | Department of Finance
Exports to outperform in 2020; WTO tariffs a headwind for 2021
Contributions to export growth, pp Quarterly Profile for exports, 2020q1 = 100
10.5%
1.9%
1.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2019 2020 2021
Contract manufacturing
Underlying goods
Services
Total Exports
projections
Source: a) and b), CSO & DoF projections
86
88
90
92
94
96
98
100
102
104
106
108
2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4
Deal counterfactual
No deal forecast
projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
25 An Roinn Airgeadais | Department of Finance
Imports broadly in line with final demand
Quarterly Profile – Modified Imports, 2020q1 = 100Import growth y/y %
86
88
90
92
94
96
98
100
102
104
106
20
19
Q1
20
19
Q2
20
19
Q3
20
19
Q4
20
20
Q1
20
20
Q2
20
20
Q3
20
20
Q4
20
21
Q1
20
21
Q2
20
21
Q3
20
21
Q4
Deal counterfactual
No deal forecast
projections
Source: a) CSO & b) DoF projections
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2019 2020 2021
Average Model Prediction
Modified Imports
projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
26 An Roinn Airgeadais | Department of Finance
External accounts: surplus reduced by assumed tariffs / NTBs / etc
Modified Current Account, % of GNI*
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2019 2020 2021
projections
50%
55%
60%
65%
70%
75%
80%
85%
2019 2020 2021
projections
Modified Trade Balance, % of GNI*
Source: a) & b) CSO & DoF projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
27 An Roinn Airgeadais | Department of Finance
Inflationary pressures non-existent
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
20
19
Q1
20
19
Q2
20
19
Q3
20
19
Q4
20
20
Q1
20
20
Q2
20
20
Q3
20
20
Q4
20
21
Q1
20
21
Q2
20
21
Q3
20
21
Q4
Energy Core Services
Unprocessed Food Processed Food
NEIG Actual Rents for Housing
All Items HICP Core
projections
Source: a) macrobond & b) eurostat
Core inflation remains muted, y/y % change
0
10
20
30
40
50
60
70
80
07/1
9
07/1
9
08/1
9
09/1
9
10/1
9
11/1
9
12/1
9
01/2
0
02/2
0
03/2
0
04/2
0
05/2
0
06/2
0
07/2
0
08/2
0
09/2
0
Human
transmission
confirmed
OPEC +
supply
cut
3 month
low
Brent spot price, close USD
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
28 An Roinn Airgeadais | Department of Finance
1500
1600
1700
1800
1900
2000
2100
2200
2300
2400
2500
Q1 2
016
Q2 2
016
Q3 2
016
Q4 2
016
Q1 2
017
Q2 2
017
Q3 2
017
Q4 2
017
Q1 2
018
Q2 2
018
Q3 2
018
Q4 2
018
Q1 2
019
Q2 2
019
Q3 2
019
Q4 2
019
Q1 2
020
Q2 2
020
Q3 2
020
Q4 2
020
Q1 2
021
Q2 2
021
Q3 2
021
Q4 2
021
Labour market has borne the brunt
Projections
Employment levels (‘000) Employment growth
-15.0
-10.0
-5.0
0.0
5.0
10.0
2019 2020 2021
Projections
Source: a) & b) CSO & DoF projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
29 An Roinn Airgeadais | Department of Finance
Unemployment shock lingers in the near-term: L-intensive sectors
Unemployment rate (% of labour force)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
2019 2020 2021
10.7%
projections
15.9%
5.0%
Quarterly profile for unemployment rate (% of labour force)
Source: a) & b) DoF projections
4.8%5.4% 5.2%
4.5%
8.7%
27.4%
15.6%
12.5%
11.4%10.6% 10.1%
9.7%
11.6%
10.9%10.4%
10.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
Deal counterfactual
No deal forecast
projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
30 An Roinn Airgeadais | Department of Finance
Evolution of ‘wage bill’
2018
2019
2020
2021
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
Pa
y p
er
em
plo
ye
e g
row
th (
y-o
n-y
, %
)
Unemployment rate (% of labour force)
Wage “Philips Curve” Recovery in labour income driven by employment recovery
Source: a) & b) CSO & DoF projections
-15.0
-10.0
-5.0
0.0
5.0
10.0
2019 2020 2021
Employees
Pay per employee
Wage bill
projections
31 An Roinn Airgeadais | Department of Finance
Household savings = precautionary motive
Household savings rate, per cent of disposable incomeContribution to real disposable income growth
0
5
10
15
20
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
projections
Source: a) CBI & DoF b) CSO & DoF
4.7
-0.5
2.1
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2019 2020 2021
labour
capital income
net cash transfers
PCD
real disposable income
projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
32 An Roinn Airgeadais | Department of Finance
Contributions to growth in GDP and MDD
Contribution to change in GDP – y/y% Contribution to change in MDD – y/y%
3.6
1.0
-0.6
1.9
-3.5
2.0
5.6
-2.5
1.4
-8
-6
-4
-2
0
2
4
6
2019 2020 2021
MNX
Stocks and Statistical Discrepancy
MDD
GDP
projections
2.0
-4.7
3.4
1.2
2.5
-0.4
1.1
-2.8
1.0
3.3
-6.5
3.9
-10
-8
-6
-4
-2
0
2
4
6
2019 2020 2021
Personal consumption
Public consumption
Construction
Other Modified Investment
Modified domestic demand
projections
Source: a) & b) CSO & DoF projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
33 An Roinn Airgeadais | Department of Finance
Assumed quarterly profile for economic activity
GDP, 2019q4=100
Source: CSO & DoF projections
If deal: back to pre-crisis level (=2019q4)
by end-2021
[ not baseline scenario ]
If ‘no deal’: Still below pre-crisis level (=2019q4)
by end-2021
[ baseline scenario ]
90
95
100
105
2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4
No-Deal
Deal counterfactual
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
34 An Roinn Airgeadais | Department of Finance
National income and flow-of-funds
Contribution to change in national income – y/y%
2.1
-3.1
2.2
0.6
-2.1
0.8
6.1
3.1
-1.0
8.9
-2.0
2.1
-6
-4
-2
0
2
4
6
8
10
2019 2020 2021
Labour
Taxes/subsidies
Statistical discrepency
GOS
National Income
projections
Modified S-I (% of GNI*)
3.3
7.4
1.5
3.4
8.1
7.2
1.0
-9.0
-5.7
7.76.7
3.4
-12
-7
-2
3
8
13
18
2019 2020 2021
Modified Corporate S-I
Household S-I
Government S-I
Modified S-I
projections
Source: a) & b) CSO & DoF projections
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
35 An Roinn Airgeadais | Department of Finance
2019 2020 2021
GDP 5.6 -2.5 1.4
Modified Domestic Demand 3.3 -6.5 3.9
Modified gross national income (current prices) 7.6 -5.6 1.8
Personal consumption 3.2 -7.7 5.8
Government consumption 6.3 13.3 -1.8
Modified investment 1.2 -19.3 5.1
Exports 10.5 1.9 1.0
Modified imports 12.4 1.8 2.3
Modified current account 7.7 6.7 3.4
Employment 2.9 -13.8 7.1
Unemployment (rate) 5.0 15.9 10.7
Budget 2021 forecasts, annual per cent change unless stated
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
36 An Roinn Airgeadais | Department of Finance
Forecast Changes vs SPU (2020): 2020 & 2021
Contributions to revision – 2020, pp Contributions to revision – 2021, pp
Source: a) & b) Department of Finance
*contributions may not sum due to rounding
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
37 An Roinn Airgeadais | Department of Finance
Downside Upside
Second national lock-down Widespread deployment of vaccine earlier than expected
National lockdowns in main trading partners Significant progress on effective treatments limit mortality rates
Premature fiscal tightening in main trading partners Brexit trade agreement concluded (this year or next)
Financial sector becomes “amplifier” Faster-than-expected recovery in trading partners
Brexit impact leads to non-linearities
Beyond short-term:
“Scarring” effects [ labour market mismatch / productivity ]
Legacy effects [debt (public & private) / re-shoring / de-globalisation
Risk matrix – balance = tilted to downside
38 An Roinn Airgeadais | Department of Finance
Overview of supply-side developments
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
39 An Roinn Airgeadais | Department of Finance
Possible recovery scenarios [ publication (evidence base) = forthcoming ]
Baseline:
• No Covid, Brexit ‘deal’ scenario
Recovery:
• rapid rebound to pre-pandemic level output
Swoosh:
• slow recovery due to scarring
• more likely the longer it lasts
2nd wave:
• 2nd lockdown
• slow recovery due to precautionary saving etc.
Medium term scenarios for real GDP (€mn)
Source: Department of Finance
70,000
75,000
80,000
85,000
90,000
95,000
100,000
105,000
110,000
Baseline
Recovery
Swoosh
2nd wave
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
40 An Roinn Airgeadais | Department of Finance
‘Trend’ growth post COVID-19 ?
Transmission channel Impact on potential output growth
Labour Migration -
Labour Supply - / +
Education/Training - / +
Capital Stock Investment - / +
Social distancing -
Total Factor Productivity Within firms - / +
Between firms - / +
Reallocation of activity - / +
See also: Mauro, Filippo di, and Chad Syverson. “The COVID Crisis and Productivity Growth.” VoxEU.Org (blog), April 16, 2020. https://voxeu.org/article/covid-crisis-and-productivity-growth
Young, Garry. “Covid-19: Deficits, Debt and Fiscal Strategy.” Presented at the Institute for Fiscal Studies (IFS) and the National Institute of Economic and Social Research (NIESR) (Webinar), July 1, 2020.
https://www.ifs.org.uk/uploads/Presentations/Covid-19-Deficits-debt-and-fiscal-strategy.pdf
Body Level One
Body Level Two
Body Level Three
Body Level Four
Body Level Five
41 An Roinn Airgeadais | Department of Finance
Alternative output gap measure: GDP, Extended HP
Average of K and L model estimates
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
202
5
Source: a) & b) Department of Finance
0
5
10
15
20
25
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
202
3
202
4
SPU 2019 Budget 2021
Potential Output
42 An Roinn Airgeadais | Department of Finance
Conclusion
43 An Roinn Airgeadais | Department of Finance
Summary
• Economy in finely balanced position
- shock = disproportionate impact on labour-intensive service sectors
• Labour market has borne the brunt
- some firms / sectors potentially not viable with social distancing
- Unemployment rate likely to be ‘higher for longer’
• Outlook is for very modest growth
- Drag on exports from no-deal Brexit
- MDD recovering slowly
• Risks heavily tilted to downside
- Vaccine a key unknown
- Significant discontinuities on downside
44 An Roinn Airgeadais | Department of Finance
Disclaimerand other information:
The forecasts in this presentationare those of the Department of Finance.
Outturn data are sourced from a variety of sources including the Department of Finance, Central Statistics Office, European Commission (AMECO) and
CentralBank of Ireland.
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