Central Bank: Vaccines to drive rebound but Covid-19 economic scars may be long-lasting    

'Profound' effects of Covid crisis on the housing crisis will lead to 23,000 fewer homes being built than bank once thought

People walk along a deserted Grafton St in Dublin city centre as Ireland remains in lockdown. Picture: Niall Carson/PA

The rollout of Covid-19 vaccines will spur the start of an economic rebound by the summer — but the scars from the crisis in increased unemployment, business failures, and mortgage arrears could be long-lasting, the Central Bank has said. 

The Central Bank in its latest outlook also said the "profound societal and economic" effects of the Covid crisis on an already acute housing crisis will lead to 23,000 fewer homes being built than it once thought.  

Unemployment, including 460,000 people currently on pandemic payments, will peak at 25% this quarter and fall back as the level 5 restrictions are lifted. However, the bank forecasts unemployment will average 7.8% next year, well above the sub-5% jobless rate before the onset of the pandemic early last year.     

In terms of bald macroeconomic numbers, Ireland's recovery nonetheless will be relatively strong. 

With the Brexit deal done at Christmas, the Central Bank forecasts GDP will grow by 3.8%, or by around 3% in terms of modified domestic demand — the measure that most accurately reflects the economy as experienced by Irish households.     

Mark Cassidy, the bank's director of economics and statistics, told reporters the number of company liquidations would inevitably increase as firms run down any cash buffers and as Government supports are eventually withdrawn. The permanent job losses that will be revealed in areas including hospitality will weigh on a strong economic recovery, he said.

Mark Cassidy, director of economics and statistics, Central Bank of Ireland

With people losing their jobs or part of their household income during the crisis, there will be increased levels of mortgage arrears, "which is problematic" given an already elevated level of mortgage arrears, Mr Cassidy said.       

And he said that it was critical to prevent short-term unemployment from becoming long-term unemployment.

Reskilling will be required even though it is difficult to move workers to parts of the economy, including IT and pharma, that need skilled staff.

On housing, the Central Bank estimates that with 18,500 new homes built in 2020, completions will increase only "modestly" to 21,500 this year, and to 23,500 in 2022. 

Mr Cassidy said that, in 2022 alone, 8,000 fewer homes will be built than it had predicted before the onset of the pandemic, and that over three years, it now forecasts 23,000 fewer homes will have been built due to the pandemic. 

Government budget deficits of €19.3bn and €20.5bn in 2020 and 2021, respectively, will fall to €9.6bn in 2022, the Central Bank said.     

Its growth forecasts assume a "successful" rollout of vaccines by the second half of the year, but "the outlook is considerably uncertain, however, and contingent on key assumptions on Covid-19 developments", the bank said. 

"These include the frequency, scale and duration of new Covid-19 outbreaks; the nature and duration of the containment measures to combat these outbreaks; the degree to which policy supports mitigate the resulting adverse economic impacts; the time it takes for effective vaccines to be widely deployed; and the degree to which the economic disruption that has occurred leaves long-lasting scars," it said.