The fallout from the Covid-19 crisis will be long-lasting in terms of unemployment and other social costs, despite a strong economic rebound, an all-Ireland report from EY has warned.
The accountancy group said pent-up savings will help drive economic recovery in the Republic and the North and as in past crises that the rebound in terms of GDP will be strong.
However, the legacy of the Covid-19 as in previous crises will last much longer than beyond the health restrictions as unemployment rises "across the island as government supports come to an end".
EY projects that after contracting by only 5.4% last year, the Republic's economy will grow 3.2% this year, based on the measure of modified domestic demand, which more accurately reflects economic activity in the southern economy. In the North, where GDP shrank 10% last year, the economy will grow 6% in 2021, according to EY.
However, employment will take until 2023 and 2024 in the Republic and the North, respectively to regain their pre-pandemic levels, it said. "Sadly, regardless of the policy choices made, there will be an unavoidable economic cost of the pandemic on the island," EY said.
The EY echoes many of the themes of private and public forecasters. The Central Bank and the Economic and Social Research Institute, business group Ibec, as well as the Department of Finance have forecast that the pent-up savings by people who kept their jobs will help drive economic recovery in the Republic. The Department of Finance puts the amount of savings that is likely to be spent at only €4bn, however.
The Republic's economy and Government finances were protected last year by the US multinationals and IT firms whose exports and profits ballooned during the pandemic.
The same forecasters, however, have also warned about the long-term fallout from the crisis, mostly in terms of unemployment from the parts of the economy, such as hospitality and tourism that have been among the hardest hit in the past year.
EY also said that price pressures will likely build, with inflation in the Republic rising by 1.5% and 2% this year and in 2022.
Separately, the Bank of Ireland said the consumer and business survey it carries out for the EU showed sentiment was approaching its pre-crisis levels as the vaccinations are rolled out and in the anticipation of the lifting of restrictions.
Its survey, which is combined with others across the EU, showed 73% of the Irish survey expected house prices to increase in the coming year, across all regions.
"But while households were along for the ride, it was firms who were behind the wheel driving the improvement in the headline index in April," said the bank's chief economist Loretta O'Sullivan. "Businesses were also pretty upbeat about growth prospects further out, with three in five having ambitions to expand in the next one to three years, which is in line with the pre-Covid figure,” she said.
Meanwhile, the number of retail and wholesale start-ups have surged in the first quarter from a year earlier, CRIFVision-Net said, but that may not necessarily signal a healthy economy.
"The quarterly figures published today reveal an 88% year-on-year increase in retail trade and wholesale start-ups, suggesting that the continued Covid-19 public health restrictions and resulting job losses, may have compelled more individuals to start their own businesses in response to the last 12 months of adversity," it said.