4.5% growth in economy forecast despite Covid damage
Minister for Finance Paschal Donohoe will publish the Stability Programme Update later today which will set out new deficit and growth targets for the economy.
RTÉ News understands it will project growth of 4.5% in the economy this year, with a budget deficit equal to 4.7% of Gross Domestic Product, but much of this will depend on the success of the vaccination programme.
A separate measure for the domestic economy shows a lower growth rate this year but a higher rate for next year.
The Stability Programme Update (SPU) is required under European budgetary rules.
The Department of Finance only publishes two sets of economic forecasts every year, the one today and one at Budget time in October.
Despite the damage wrought by Covid, the economy has been resilient and tax income has held up better than expected. There is also a trade deal now in place with the UK.
The forecast figure for last year’s deficit at Budget time has turned out to have improved from just over €21 billion to just over €18 billion.
The SPU will also contain a downside scenario in the case of Covid restrictions lasting longer than expected.
Modified Domestic Demand, which focuses on the domestic economy, is forecast to grow by 2.5% in 2021 and 7.5% next year.
The SPU is expected to say that the recovery in the economy in the second half of this year and into next year is dependent on the success of the vaccination programme and the lifting of public health restrictions.
The adverse scenario outlined in the SPU is based on a “severe epidemiological” situation which would see the current restrictions in place for a “prolonged period”.
This would knock one percentage point off growth this year and would halve projected growth next year.
The Government’s deficit is expected to be 4.7% this year and 2.8% next year. In 2020, the budget deficit was 5% of GDP or €18.4 billion.