Donohoe: Recovery from Covid-19 crisis on jobs and exchequer will be 'gradual and partial'

The Irish economy will suffer a huge contraction in output and endure record job losses this year, before employment levels recover gradually as output rebounds in 2021, according to the first Government forecasts on the fallout from the Covid-19 crisis.

The Department of Finance projections - which were prepared as part of the regular cycle of budget oversight by the EU - take on huge significance by throwing a light on the way that officials believe the economy will fare through the unprecedented Covid-19 health crisis.

The numbers are starkly different from the same document produced at the same time a year ago. Then, officials worried about the risk of an overheating economy performing at levels of full employment.

Finance Minister Paschal Donohoe said "the recovery will be gradual and partial". He warned 220,000 jobs will be lost before a recovery in 2021 when there will be a 5.5% increase in employment, but the economy will not return to where it was at the start of this year until 2022.

The predictions are based on restrictions lasting for three months and GDP could fall by as much as 15% if they last until the end of the year.  “Unemployment of 22% is projected for the second quarter," Minister Donohoe said.

The forecasts also show that last year’s budget surplus balloons into a deficit of €23bn this year and remains high next year at a deficit of €13.8bn - such is the scale of the spending on health and employment measures and the hit taken to Government tax revenues over the next two years.

Total exchequer tax revenues fall to €49.6bn this year from €59.3bn last year.

They are then seen rising to €54.2bn in 2021.

The NTMA said it will increase its funding plans to finance the deficit.

Unemployment will rise to the historic peak of 22% this summer and will fall only gradually through the rest of the year to average almost 14% in 2020.

It then falls back to average 9.7% in 2021, according to the forecasts.

Employment levels will fall to 2.1 million this year, down from the all-time record level of 2.3 million last year, and will grow gradually to over 2.2 million in 2021, the department says.

The forecasts show all three measures of the economy - GDP, GNP, as well as modified Gross National Income (GNI), which strips out the distortions to give a more accurate reading of the size of the economy - show sharp economic contractions.

GDP will slump by 10.5% this year and rebound by 6% in 2021; GNP will drop by 11.7% and will grow by over 7% in 2021; while modified GNI slides by 15.5% this year before rebounding by 9.6% in 2021.

The Department of Finance said in its commentary that the economy has endured “fundamental change” in a matter of weeks.

The budget deficit this year is the equivalent of a deficit of 7.4% of GDP, and a deficit of 4.1% of GDP in 2021 -- compared with a surplus of 0.4% of GDP last year.

Government debt rises to over 69% of GDP this year, up from 58.8% of GDP in 2019, and settles back at 68.4% in 2021, the forecasts show.

However, in terms of GNI, Government debt climbs to over 125% of this measure, up from 99.2% of GNI last year, and will fall back slightly to 121.6% in 2021, the forecasts show.