The Central Bank has said the economy could shrink this year by up to 14%, while it has also warned that unemployment could average as high as 17% this year.
In its latest Quarterly Bulletin, the Central Bank also highlighted the risks to the economy of a no-deal Brexit.
The Central Bank has said there is considerable uncertainty attached to its forecasts.
It believes GDP could fall this year by 9% under its baseline scenario and 13.8% under its “severe” scenario. GDP will not get back to 2019 levels until 2022.
It cautions that any recovery will still be tempered by precautionary behaviour and continued social distancing.
Labour intensive activities such as retail, food and beverage, accommodation, tourism and travel will be worse hit.
It points out that continued strong growth in the Information & Communications Technology (ICT) and pharmaceutical sectors have offset declines in other parts of the economy.
In the labour market, the quarterly bulletin forecasts that unemployment will remain between 14.5% and 16.6% this year.
It finds that at the peak of the Covid restrictions in mid-April, 72% of workers in the accommodation and food service sector were in receipt of the Pandemic Unemployment Payment (PUP) and over half of all construction workers.
Since then the number of construction workers on the PUP has declined by 42%.
However, very few jobs have been regained in the accommodation and food service sector with only an 8% decline.
This may improve after this week’s stage of reopening restaurants and bars.
The bank also notes a massive increase in savings.
Deposits were up €3.5 billion in April and €1.5 billion in May. This compares to monthly averages of just under €600 million pre-pandemic.
There has also been a corresponding decline in the demand for credit.
The glut of savings, the bank said, could provide a resource for a consumer-led recovery.
Early data from the start of June show card payments recovering close to 2019 levels after falling 30% in April.
Card use has been boosted by a decline in cash with ATM withdrawals down by between 40-50% year-on-year.
More companies are also developing an online presence, with a 40% increase in IE domain name registrations since March.
The bank notes the continuing uncertainty surrounding Brexit.
It says the immediate impact of a no-deal is hard to quantify but that over time, GDP could be reduced by between 3.5% and 5%.
It notes that the Covid-19 pandemic may have hampered firms’ efforts to diversify into new markets away from the UK and will also have made them more financially constrained.
“While additional policy measures may be required to give some impetus to recovery, it will be important, in due course, for the Government to provide for a clear and credible return to much lower and sustainable deficit and debt positions,” Mark Cassidy, Director of Economics and Statistics at the Central Bank said.
Minister for Finance Paschal Donohoe said the challenges Ireland faces are great in relation to incomes, jobs and peoples’ futures, but “we have the measure of it”.
He said the country faces a long and difficult journey, but “we will be able to complete it”.
Speaking on RTÉ’s Morning Ireland, Mr Donohoe said the PUP and wage subsidy schemes will not come to an abrupt end, but decisions will need to be taken by the Government.
He said no decision yet has been made on VAT for the hospitality sector.
He said everything is under review and that he understands how vital the sectors are to the economy.
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