New official projections see Irish unemployment at 10.7% in 2021    

GDP will contract by 2.5% this year and rebound by 1.4% in 2021

Minister for Finance, Paschal Donohoe TD during a media briefing on the macroeconomic forecast for Budget 2021, following endorsement by IFAC at Government Buildings Dublin. Picture:Gareth Chaney/Collins

The economic fallout from the Covid-19 crisis is less severe than once feared, but unemployment will remain at elevated levels for some time to come, new official forecasts suggest. 

Finance Minister Paschal Donohoe has unveiled the Government's economic outlook showing that GDP will contract by only 2.5% this year and rebound by 1.4% in 2021, as the activities of multinationals help shield Ireland to some part from the worst of the economic storm.

However, Minister Donohoe pointed to the forecasts for a 6.5% slide in domestic demand this year as providing a more accurate picture of the damaging effects and potential long term economic "scarring" from the Covid fallout.

Minister @Paschald has published the economic forecasts that will underpin Budget 2021. Read the statement in full here: https://t.co/evIfnV5FeA #Budget21 pic.twitter.com/eJdzv9A1Xk

— Department of Finance (@IRLDeptFinance) September 29, 2020

The Department of Finance's new forecasts also suggest that unemployment will be at stubbornly high levels next year, after peaking at over 27% during the lockdown earlier this year.

It forecasts an average unemployment rate this year of 15.9% and 10.7% in 2021.   

The projections are based on the assumption that Britain will leave the EU without striking a trade deal at the end of the year, and "secondly, a widespread vaccination for Covid-19 vaccine will not be available".        

“While the economic decline is expected to be less severe in 2020 than previously envisaged there is no doubt that we have experienced a significant shock since March and the onset of Covid-19," Minister Donohoe said. 

On the plus side, however, it is important to note that employment is expected to grow by around 7% or 145,000 jobs next year, having a very real impact on the economy and society more generally        

Meanwhile, new CSO figures for September showed that young people remain vastly more affected by unemployment than older people during the Covid crisis, with almost one in five out of work. 

The CSO said that the crisis continued to have a “significant impact” on the labour market in September.

Its Covid-19 adjusted measure, which takes account of the over 217,000 people relying on the pandemic unemployment payment, shows an unemployment rate of 14.7% in the month, down from 15.3% in August.  

The stark gap between younger and older people was again laid bare in September, with a youth unemployment rate of 36.5% for people under 24, compared with a 12% rate for people between 25 and 74, the CSO said.

The budget will be “pivotal” in how the labour market recovers, economist at jobs website Indeed, Jack Kennedy, said.

As with previous downturns, the impacts can be unevenly felt and threaten to deepen the divide across sectors, regions and age groups

The latest reading of consumer sentiment by KBC Bank Ireland suggests that confidence picked up in September, but that the local lockdowns may yet 

Chief economist Austin Hughes said he was encouraged "but that the zig-zag pattern of recent months hints at an Irish consumer struggling to make sense of a very unclear environment".

"More worryingly, the sentiment index remains at levels that suggest consumers remain worried about both the general economic outlook and their own household finances," he said.