Central Bank predicts return to pre-pandemic economy before end of year

The Central Bank says the rapid recovery means its worst fears for long-term damage to jobs and livelihoods have eased significantly.

In its latest outlook, the Central Bank said the rapid recovery means its worst fears for long-term damage to jobs and livelihoods have eased significantly.

The economy is set to bounce back to pre-pandemic levels as early as the end of this year, the Central Bank has said.

In its latest outlook, the bank said the rapid recovery means its worst fears for long-term damage to jobs and livelihoods have eased significantly.

However, it cautions that the economic recovery will be uneven, saying sectors little affected by the pandemic will continue to grow, while hospitality and tourism, which were among the worst-hit, will take longer to recover.

The bank has also warned that labour shortages and global supply bottlenecks will pose a significant challenge to efforts to address the housing crisis.

Housing output will climb, with the construction of 31,000 new homes in 2023, but “persistent imbalances” are leading to house price increases.

Mark Cassidy, director of economics and statistics at the bank, said the challenges of delivering sufficient housing to meet demand are well known.

Some 15,000 fewer homes will have been built in 2020 and 2021 because of the pandemic, Mr Cassidy said, adding that additional construction workers would “undoubtedly” be needed to meet house-building targets.

Migration will take time to return to pre-pandemic levels and potentially hamper house-building, the report noted.

“A rise in labour resources and an easing of supply chain pressures and input costs will have to emerge to ensure that real growth is achieved,” the bank said.

Mr Cassidy said the bank was highlighting the risk “rather than casting doubt” on the Government’s housing targets.

The Central Bank said the hike in wholesale European energy prices that has dramatically pushed up household bills will likely last for some time. Pressures will ease in the second half of next year, it said.

Driven by energy costs, it projects price inflation will accelerate to almost 3% in 2022, up from over 2% this year, before easing back.

Economic activity as measured by modified domestic demand will climb 5.5% this year and by over 7% in 2022, it projects. 

Growth could be even stronger should households release as much as €16bn in excess savings built up during the pandemic in the coming years.

Wages are expected to rise strongly in those areas that face the highest vacancies such as finance and construction.

However, the effects of the eventual ending of the Employment Wage Subsidy Scheme (EWSS) could reveal closures and company liquidations, the bank said.

Mr Cassidy noted there was a consistently significant number of employees, around 310,000, on the EWSS and the number had not fallen unlike those on the pandemic unemployment payments, at around 105,000 people.

Nonetheless, the number of people leaving the EWSS going into unemployment will likely be limited as the economic outlook has brightened.

The exports of multinationals which are dominated by pharmaceuticals and computer giants will help push economic growth, in GDP terms, to 15.3% this year and by over 7% in 2022.

With Ireland now expected to abandon its 12.5% corporate tax rate in favour of a global rate of 15%, this could in time reduce Irish corporation tax receipts by €2bn.

There is a growing expectation the Cabinet will approve the 15% global rate at its meeting on tomorrow, clearing the way for Ireland to join a group of 134 countries that have already signed up.

"It's not the rate that is the biggest problem, Ireland's position is evolving on this subject and a compromise can emerge at 15% as the real effective minimum taxation," French finance minister Bruno Le Maire said.

Peter Vale, tax partner at Grant Thornton Ireland, said that “arguably” Ireland’s tax regime faced a greater threat should the US opt to further tax the overseas profits of US multinationals.