The economic outlook for 2022 and the medium-term is largely positive – provided that the re-opening of labour-intensive sectors of the economy continues and that no further containment measures in the face of new Covid-19 variants are introduced.
In advance of Budget 2022, the Department of Finance has published revised macroeconomic and labour market forecasts for the period 2020 to 2025.
Real GDP is forecast to grow by 8.8 per cent in 2021, before moderating to 5 per cent in 2022. However, this reflects the growth from 2020’s exceptionally low base and the strong performance of those industries focused on international export markets, such as manufacturing. Meanwhile, Real MMD (Modified Domestic Demand) is forecast to grow by 2.6 per cent in 2021, before rebounding more strongly in 2022.
The pandemic will continue to set the course for the Irish and EU economies in the short term.
|MACROECONOMIC GROWTH AND LABOUR MARKET FORECASTS 2020 – 2025|
|Real MMD (% growth)||-5.5%||2.6||7.4||3.8||3.4||3.4|
|Real GDP (% growth)||3.4||8.8||5.1||3.7||3.3||3.2|
|Total Employment (‘000)||1,972||2,051||2,276||2,351||2,405||2,457|
|Employment (% growth)||-15.1||4.0||11.0||3.3||2.3||2.2|
Source: Department of Finance
The pandemic impacted all sectors of the economy during 2020, and 2021 to date, as the levels of Covid-19 related restrictions varied over the past 18 months.
Sectors focused on the domestic market, such as construction, experienced significantly lower levels of economic activity in 2020, with the construction sector contracting by -12.7 per cent. GVA for the sector was €7,502m in 2020.
|GVA by NACE sector, 1995-2020 (€ Million)|
|GVA by NACE sector, 1995-2020 (€ Million)||1995||2000||2005||2010||2015||2017||2019||2020|
Data Source: CSO
The Covid-19 restrictions effectively shut down almost all construction output at the height of the crisis, except for a limited number of essential projects. The closure of all non-essential construction projects in early Q1 2021 is reflected in the year-on-year change in the volume of production for the Residential sector, which saw a volume decrease of 60.9 per cent in the seasonally adjusted index. Meanwhile, the Civil Engineering and Non-Residential sectors also decreased on an annual basis by 33.6 per cent and 19.5 per cent respectively.
The CSO’s data for Q2 2021, which has just been published, reflects a construction sector which slowly began to return to work in a phased manner during Q2. The volume of production in construction increased by 7.7 per cent in Q2 2021 compared to Q1 2021 on a seasonally adjusted basis. And on an annual basis, the overall volume rose by 26.3 per cent in Quarter 2 2021.
The Residential sector shows the largest quarterly increase with a rise of 52.6 per cent in the seasonally adjusted volume index, while the Civil Engineering sector increased by 30.6 per cent. The Non-Residential sector increased by 2.2 per cent in Q2 compared to Q1.
The overall increase in production on an annual basis saw a volume increase of 85.0 per cent to the end of Q2 2021 in the Civil Engineering sector. The Residential and Non-Residential sectors also increased annually by 43.6 per cent and 19.1 per cent respectively.
However, the closures during 2020 and 2021 must be carefully considered when interpreting the annual increase in the volume of production on a sectoral basis. The CSO’s Production in Building and Construction is best used as a short-term indicator.
While there was a moderate gain in the share of sectoral GDP for construction in Q4 2020 (€2.2bn) compared to Q3 2020 (1.9bn), data for Q1 2021 shows a steep decline from Q4 2020 investment figures of -27.9 per cent following the closure of all non-essential construction. Overall, for 2020, GFCF declined by 32.3 per cent. This decline was largely driven by the significant yearly drops in machinery and equipment (-25.2 per cent), and building and construction activity (-9.1 per cent).
In terms of recovery, modified investment is forecast to grow by 2.5 per cent this year, accelerating to 6.8 per cent in 2022 according to the Central Bank. Modified investment in building and construction is forecast to grow by approximately 1 per cent this year, accelerating to approximately 5 per cent in 2022 and 6 per cent in 2023.