Oliver Mangan: Savings and low-interest rates to herald brighter prospects 

House building activity held up better than expected in 2020, with housing completions likely to be close to 20,000 for the year. Picture: Gareth Fuller/PA Wire

The global recession last year triggered by the Covid-19 pandemic saw the largest contraction in world economic activity since the Great Depression of the early 1930s. Output fell very sharply in the first half of the year, bounced back strongly in the third quarter as restrictions were eased, but the recovery lost momentum in the final quarter as a second wave to the coronavirus took hold. 

In Ireland’s case, the hit to the economy was mitigated to some extent by the continuing strength of exports, most notably from the multinationals. 

The data for the first three quarters of the year show the volume of exports rose by 4.4% year-on-year over the period, while GDP was up by 3.6%, while GNP, which strips out profit repatriations, was broadly flat, and there was a marked contraction in the domestic economy. Consumer spending took a considerable hit, declining by 10% in the period. 

The recession of 2020 saw employment contract and unemployment rise. At one stage early last year, the unemployment rate including those on pandemic unemployment payments rose close to 29%. 

Meanwhile, the recession appears to have had little impact on house prices, which were broadly stable last year. Rents in the residential sector, though, did come under downward pressure, with the latest CSO data showing them down 3.2% in November from a year earlier. 

House building activity also held up better than expected in 2020, with housing completions likely to be close to 20,000 for the year, down only modestly on the 2019 total of 21,240, despite the near two-month shutdown of building sites last spring.

Economic outlook

Turning to the economic outlook for 2021, it is clear that monetary policy will remain supportive of activity globally over the next number of years, with interest rates staying very low, and in Ireland, the budget has ensured that fiscal policy will continue to provide considerable support to the economy in the coming year.

Meanwhile, the agreement on an EU-UK trade deal removes a large element of uncertainty, though there will be big changes and increased costs for businesses trading with the UK. 

With economies both here and elsewhere going back into lockdown over the Christmas period, it is proving to be a difficult start to the New Year for many businesses. However, the roll-out of vaccines in the months ahead should lay the foundations for a sustained and robust global economic recovery to take root as the year progresses.

An unwinding of the large build-up of private sector savings during 2020, together with the supportive stance of macro policy, points to the scope for a strong rebound in activity in the next couple of years. Most forecasts are for Ireland’s economic growth rate to pick up to around 5%. 

Oliver Mangan is chief economist at AIB