OECD: Economy to grow 3% in 2021 despite January lockdown

Pedestrians on Oliver Plunkett St, Cork City, during the last days of the level 5 lockdown on November 27. Piture: Larry Cummins

Ireland is weathering the Covid-19 economic storm better than most wealthy states, and the economy will expand by around 3% in 2021 — even after taking account of the next looming lockdown, the Irish expert at the Organisation for Economic Co-operation and Development (OECD) has predicted.

In an interview, Douglas Sutherland, senior economist at the OECD, said Ireland will be one of only a handful of OECD countries to post growth this year, and the economy will likely expand again next year, by around 3%.

Mr Sutherland told the Irish Examiner that the conditions are in place for the worst-hit parts of the economy — including hospitality and tourism — and for retail to recover quickly once the new Christmas and January restrictions are navigated, but there was uncertainty over unemployment levels next year because older people in particular, may be less willing to spend than they have in the past, even with the arrival of vaccines.

Unemployment of 10% at the end of 2021, which was forecast recently by the ESRI, down from around 20% in November, was feasible, but the recovery could yet be stronger again if the fallout in January was less than feared.

The strength of exports from pharmaceutical makers and parts of the IT industry was “one side” of the Irish recovery, but “as we all know, the domestically-orientated economy has been taking the sort of hit that has been seen across the OECD”, said Mr Sutherland.

However, Ireland’s economy was not facing the long years of permanent scarring that followed the bailouts of the banks and the sovereign debt crisis from late 2010, he said.

For 2021, “the prospects of the vaccine coming out and [with] the confidence of the youngsters who are wanting to go out, you could see a reasonable bounceback”, said the OECD economist.

Ireland will, nonetheless, face challenges in meeting carbon-cutting obligations in the coming years.

The Government “should tread carefully” as it considers withdrawing Covid unemployment and business supports because it will need to address those people who have been most affected by unemployment, he said.

Asked whether it was too early for the Government to consider cutting the levels of the pandemic unemployment payment, Mr Sutherland said he was “quite impressed” by a recent report on the income distributional consequences of support measures involving the PUP and wage subsidy schemes.

He said all governments were aware of the money they were spending during the crisis and will need to target it more tightly, while keeping in mind whether the levels of support will be enough.

Ireland will end up with higher levels of debt, but the Irish have demonstrated ways to bring debt ratios down after the global financial crisis, he said.

On future taxes, he said there was room to think about the potential to “squeeze out efficiencies” in health spending and to look again at Vat and the local property tax.

On housing, he said the OECD is working on a project and recommendations for land use and social housing.