Unemployment will return to its pre-Covid-19 levels in late 2023 and only then if there is no new outbreak of the disease, while house building will be severely disrupted for a number of years, the Central Bank has predicted.
Its latest report also sees the budget deficit swelling to over €23bn this year before the additional costs under the stimulus measures planned by Finance Minister Paschal Donohoe this summer are taken into account. And the deficit will top €30bn if the pandemic makes an early return, according to the bank's worst-case outcome.
If the disease is contained, gross debt rises to over €217bn this year, or 119% of annual economic output, and tops €239bn in 2022, equivalent to over 115.5% of output.
A second outbreak of the disease entails gross debt reaching over €260bn in 2022, or almost 132% of annual output.
However, the build-up of debt will be manageable over the coming years, although the debt pile will make the State vulnerable to any other future shocks, according to the report.
On unemployment, Mark Cassidy, the Central Bank’s director of economics and statistics, told reporters the number of unemployed has risen from its pre-Covid level of 110,000, or around 5%, to around 600,000 unemployed currently, and will likely fall to around 220,000 towards the middle of next year. It will only return to the pre-crisis level of 110,000 in late 2023.
The jobless numbers include people on the live register and availing of the pandemic unemployment payment but do not include the people on the wage-support scheme.
Under a second Covid outbreak, unemployment averages 16.6% this year and 12.4% in 2021. The jobless rate remains at an elevated level of 9.4% in 2022, under this bank’s “severe” outcome.
Mr Cassidy said the uneven distribution of jobs which makes some counties more dependent on tourism, means the Covid-19 fallout could deepen the urban-rural divide, which will require policy responses.
On housing, the Central Bank sees the restrictions hitting output of new homes, with only 15,000 new units likely to be built this year, instead of the 26,500 it had forecast before the onset of Covid-19 shock.
Over the next three years, 30,000 fewer houses than first thought will be built, representing “quite a significant effect” from the crisis, Mr Cassidy said.
The budget deficits this year of over €23bn or as much as €30bn reflect whether the disease re-appears and do not include the amounts for additional stimulus measures the Government will announce this summer.
Mr Cassidy said the focus of Government policy may need to be on “more broad-based” programmes such as retraining to mitigate long-term unemployment.
However, he said as part of any stimulus package, he wouldn’t advocate loans that are 100%-guaranteed by the State because he said there were good economic reasons to incentivise lenders by setting the guarantee at a lower level.
The Central Bank report also said that the Covid-19 crisis has disrupted and weakened plans by Irish companies “to withstand further economic disruption” from the Brexit talks between Britain and the EU.
The report comes as the June exchequer returns gave the new coalition room to spend on its planned economic stimulus package, as corporation tax receipts swelled for a second successive month, helping offset declines across other tax sources.
The exchequer posted a deficit of €5.3bn for the first six months of the year, reflecting the costs of unemployment supports and the spending on healthcare during the crisis so far.