Covid and Brexit accentuating two-speed recovery, says Ibec

Ibec sees a widening gap between those sectors of the economy coping with the crisis and those struggling to recover.

Ibec has warned the gap between those companies and households who are coping with the Covid crisis and those who are struggling because of it is growing, with Ireland experiencing a so-called ‘K-shaped’ recovery.

The business representative group said some sectors are trading “robustly” through the current uncertainty, whilst others face “a hugely challenging outlook” as income and opportunities thin out.

Ibec has also warned that this gap could be further accentuated by the rising risk of a no-deal Brexit.

Ibec is the first out of the traps in a busy week of economic forecasts — which will also see the Central Bank and think-tank the Economic and Social Research Institute (ESRI) update their outlooks.

For its part, though, Ibec said the economy is likely to fall by nearly 3% this year, with consumer spending plummeting.

Ibec expects GDP to fall by 2.6% this year. That is more or less in line with the Government’s recent forecast of 2.5%, based on it now thinking the financial impact of Covid on the economy hasn’t been as bad as feared.

However, Ibec is more bullish about Ireland’s 2021 prospects than the Department of Finance. It sees GDP growing by 3.1% next year, relative to this year’s performance. That equates to only 0.5% growth relative to the economy’s performance in 2019, however.

Finance Minister Paschal Donohoe only sees 1.4% growth next year, by comparison.

Our export model will again provide the opportunity to grow our way out of a difficult economic position

Ibec is relatively optimistic due to the continuing good performance of Irish exports, but remains concerned about domestic demand which collapsed in the second quarter as investment and consumption fell.

It sees consumer spending dropping nearly 12% this year, but rising by nearly 10% next year. However, compared to a more buoyant 2019, next year’s spending performance will still likely be down by over 3%.

 ”As an open economy with access to one of the world’s biggest markets, our export model will again provide the opportunity to grow our way out of a difficult economic position,” said Ibec’s chief economist Gerard Brady.

“But, this strategy of export-led growth will only succeed, for all sectors and regions, if workers in growing sectors can spend their incomes in local economies,” he said.

“The key to Budget 2021 is not a challenge of a society with too little resources, it is a challenge of finding the right channels to get those resources moving, and people back to work,” Mr Brady said.

Ibec said there is no doubt that the country is facing some of the most challenging economic headwinds in living memory.

Meanwhile, AIB’s latest monthly survey shows that the recent recovery seen in the country’s services economy petered out in September, as Covid cases rose and economic uncertainty mounted. Two straight months of rising activity fell away and new business levels fell at the fastest rate since June.