Irish GDP to fall 3.5% this year on new COVID-19 curbs -minister

A trade deal could add 3 percentage points to GDP, the finance ministry estimated. Ireland's central bank is less pessimistic and sees GDP falling by 1.1% this year and 0.3% in 2021 under its severe scenario that is based on prolonged, stringent containment measures both in Ireland and its trading partners.

Irish gross domestic product is set to fall by 3.5% this year as a result of a new move to the highest level of COVID-19 restrictions, while the budget deficit will increase to 6.5% of GDP, Finance Minister Paschal Donohoe said on Tuesday. The government announced on Monday that all non-essential retail would be shut for six weeks from Wednesday and restaurants limited to take away services, in some of the toughest constraints in Europe.

As well as cutting state revenues, the new measures prompted the government to increase supports for workers, impacted firms and those temporarily laid off, which Donohoe said will cost 320 million euros per week and 2 billion euros over six weeks. Ireland had forecast as recently as last week that GDP would fall by 2.4% this year, capping the deficit at 6.2%.

Alongside that forecast, Donohoe's department estimated that a prolonged period of stringent restrictions in the final quarter of 2020 would delay the economic recovery into 2022 and lead to a fall in GDP of 2.1% next year. Those forecasts also assume, however, that neighbouring Britain -- a key trading partner -- leaves its Brexit transition period on less favourable World Trade Organization terms on Dec. 31. A trade deal could add 3 percentage points to GDP, the finance ministry estimated.

Ireland's central bank is less pessimistic and sees GDP falling by 1.1% this year and 0.3% in 2021 under its severe scenario that is based on prolonged, stringent containment measures both in Ireland and its trading partners. The government estimates that around 150,000 people will be temporarily laid off due to the tightening of restrictions, on top of the 40,000 let go in the last two weeks. The state also subsidised the wages of 340,000 workers last month.

Analysts at Goodbody and Davy Stockbrokers forecast that this would push the jobless rate, including those temporarily laid off, back above 20% from 14.7% at the end of September.

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