FINANCE MINISTER PASCHAL Donohoe has said the vaccine roll-out will be the single biggest determining factor in how the Irish economy recovers this year and next year.
The minister said the correlation between the vaccine roll-out and the ability of businesses to reopen is crucial, as he also highlighted government hopes that any money saved by people during the pandemic would remain in this country.
He said the government was “looking at any ways” to do this but acknowledged that people may spend it on foreign holidays.
Donohoe was speaking to reporters following a virtual Eurogroup meeting of finance ministers yesterday, of which he is the current president. The Eurogroup had received an update on the Covid-19 situation from Dr Mike Ryan and Dr Bruce Aylward of the World Health Organisation
In a statement following the meeting, Donohoe said a European Commission forecast had predicted economic growth would resume in the spring of this year under the premise of a gradual reopening of Euro-area economies.
Asked about this this afternoon, Donohoe said he believes this assumption is accurate because it assumed a “very gradual” reopening.
He added that in the fourth quarter of last year, when countries re-introduced severe restrictions, economies did not decline by as much as they did during the first lockdown.
“It does indicate that employers in different parts of the European economy did become more adept at keeping their businesses viable and operational, while also adhering to the public health guidance,” he said.
In its quarterly economic bulletin published last month, Ireland’s Central Bank forecast an “improved outlook” for the second half of 2021. The report said there could be “a potential surge in demand” as a result of the vaccination programme allowing for the easing of public health restrictions.
Donohoe said that he was “very encouraged” by Ireland’s early vaccination programme adding that we will “vaccinate many, many of our citizens at great speed” when our stock of vaccines increases.
He said the surge in demand referenced by the Central Bank partly relates to savings people have made during the pandemic, but added that the reopening of businesses is a much more important aspect of how vaccines should help the economy.
It’s the correlation between a vaccination program and the ability of an economy to open that I believe it will be the biggest driver of economic performance in 2021 and in 2022, rather than the release of savings into our economy.
Donohoe also dismissed concerns that there would be a gap in the speed of reopening on both sides of the border due to the quick pace of Northern Ireland’s vaccine roll-out.
He said he believes that most governments including the UK will “take a cautious approach” to reopening.
Savings
On the question of savings, Donohoe said that the Central Statistics Office has provided estimates of the value of savings within our economy that have reached “between 28-30% of the value of all of the income within our economy”.
“So it was a huge surge in savings, driven by our success in protecting income and also driven by the opportunities not being there to spend savings in the way they are normally there,” he said.
Asked if these savings could drive demand in the housing sector for example, the minister said he would imagine some of it would be used by people going on holiday but that the government would hope to encourage spending that would “benefit our economy”.
If that money is spent, for example, in purchasing imports we do benefit from a tax point of view but other economies benefit from a transaction point of view. If the public health restrictions were to change and travel outside of Ireland was allowed, I would imagine that some of the savings that was set aside by people not being able to go on holiday outside of Ireland would be used at that point.
“We will certainly be looking at any ways that are open to us to give opportunities for that spending to be used in such a way that will benefit our economy,” he said.
The minister added that the government would hope that Irish exporters could similarly benefit from people spending savings from abroad.
Government supports
The government’s main Covid-19 business supports, the Employment Wage Subsidy Scheme (EWSS) and the Covid Restrictions Support Scheme (CRSS), are in place until at least the end of March and Donohoe has said that “no formal decision” has been made yet on extending them.
He said however that it’s likely the supports will remain in place as long as public health guidance forces businesses to close.
“We will make a decision about these policies soon enough because, particularly in relation to the Employment Wage Subsidy Scheme, I know that how employers at the moment need guidance on what the level of funding will be there as we move into the period before the summer. And I know in the absence of that kind of kind of guidance in make things even more difficult for them.”
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