According to the latest EY Economic Eye report, the Republic of Ireland recorded the highest growth of all major economies in the world in 2020.
Ireland is expected to exit the current economic crisis in a much stronger position than the last one, according to EY.
In the latest edition of its Economic Eye report, EY forecasts that the Republic of Ireland economy will grow by 5pc in 2021 and 4.6pc in 2022. It also said the country’s labour market is expected to recover to its 2019 peak by late 2023.
According to the report, Ireland recorded the highest growth of all major economies in the world in 2020 at 3.4pc, although its domestic contraction and labour market performance were similar to comparator nations.
“Ireland exits this economic crisis in much stronger shape than it did the last one,” said Prof Neil Gibson, chief economist for EY Ireland said.
“Though the domestic economy has been hit very hard, the Government has been able to borrow to support firms and individuals and the prospect is for a very strong domestic surge later in 2021. Hopefully, this will be sufficiently strong to allow Government to ease back support and hand-on the spending baton to the consumer.”
This performance reflects the strength of the country’s export base in pharma, technology and agri-food, all of which remained strong throughout the Covid-19 pandemic.
Along with the strong economic recovery, the EY report also projected a consumer boom for late 2021, estimating an additional €11bn accumulated in domestic deposit accounts over the course of the pandemic to the middle of 2021.
Inflation could trigger a ‘damaging spiral’
While the report painted a positive picture for Ireland’s recovery, it also highlighted the challenges expected this year.
EY forecasted that inflation in the Republic of Ireland will rise by 1.5pc in 2021, with an expected peak at 3.3pc in October. This inflation is expected to be a result from increasing business costs due to Covid-19, as well as businesses trying to recoup lost revenue during the pandemic.
“Rising commodity prices, extra costs associated with public health guidelines and Brexit allied to high levels of Government and consumer spending would usually suggest the environment is ripe for prices to go up,” Gibson said.
“The hope is that this does not trigger a damaging spiral in wages and future prices, but policymakers should be alive to the risk and businesses should be scenario-planning for what that it might mean.”
EY Ireland’s head of markets, Graham Reid, added that the Irish Government will need to balance the need to continue supports without locking in escalating debt levels as a result.
“The Government was correct to support the economy in the way it did, but timing and prioritisation will be critically important when it comes to removing it,” he said.