EY expects economy to contract by 3.9% this year before rebound in 2021

Tougher Covid-19 restrictions slowed a strong rebound in spending, prompting accountants EY to rein in economic predictions for the full year.

Neil Gibson, the firm's chief economist, says that the pandemic will shrink Ireland's GDP by 3.9 per cent this year, but growth should recover in 2021 with an increase in GDP of 3.5 per cent.

EY said spending surged in the summer after the Government rowed back on the severe lockdown restrictions imposed in the spring, with even the worst-hit sectors showing some growth.

Last month the Government stepped up pandemic restrictions to Level 5, the highest in its plan to cope with Covid, last month, but has signalled an easing in precautions at the start of December.

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Economic hit

EY maintains that progress in treatments has combined with better prepared businesses to ease the severity of the economic hit this time around.

However, the accountants acknowledge that this is scant consolation to shops and hospitality businesses that had hoped the Christmas build up would make up for lost sales.

Meanwhile, two out of five jobs in the Republic were either lost or ended up partly dependent on Government support as a result of the pandemic.

Mr Gibson said the impact on employment had been broadly similar in both the Republic and Northern Ireland.

Food, pharmaceutical and technology exports insulated the Republic against the pandemic’s full economic impact, helping to keep it resilient, he noted.

“However it should not distract from the damage in the domestic economy which is such an important source of employment,” Mr Gibson warned. “The insulation for this side of the economy comes from the Government’s ability to offer financial support, something it couldn’t do as easily in the last recession.”