Vaccine roll-out and economy recovery in chaos  as €46bn deficit forecast by end of 2022

Finance Minister Paschal Donohoe will today warn Cabinet colleagues that economic recovery is solely dependent on the vaccine roll-out as the country will face an accumulated €46bn deficit by the end of 2022. 

But the roll-out is now in chaos as the HSE has cancelled all planned AstraZeneca jabs for this week and a question mark remains over the delivery of 40,800 doses of the Johnson & Johnson vaccine in April,  which has now been halted over blood clot fears.

The Taoiseach is due to meet the vaccine taskforce early this morning, before attending a Cabinet meeting where ministers will hear that economic recovery over the second half of this year and next year rests on the programme and the easing of lockdown measures.

Ministers will hear that the speed at which Ireland’s economy can recover depends on the success of the vaccine roll-out, which was planned to be “significantly” ramped up in the summer and allow for lifting of the lockdown.

With the vaccine roll-out facing new delays, the economy may spiral into further deficit, with €46.25bn already forecast for the end of 2022.

The Government last year accumulated a deficit of €18.5bn after splashing out on an unprecedented budget package of business supports of €17.75bn.

This year will add a further €17.4bn, or 4.7pc of Gross Domestic Product (GDP), to the deficit.

Meanwhile 2022 will see the addition of €10.36bn of deficit, or 2.8pc of GDP, depending on the easing of restrictions and the country opening up.

This will mean a total General Government Deficit of approximately €46.25bn at the end of 2022, depending on the success of the vaccine roll-out and the lifting of restrictions.

Mr Donohoe will bring the Stability Programme Update (SPU) before his Cabinet colleagues tomorrow, which also sets out a “downside scenario”.

This states that if virus levels meant that current restrictions needed to remain for a “prolonged period”, the Irish economy would be 4pc smaller by the end of next year than it would under the baseline forecasts.

This would be created by the GDP being 1pc lower than expected and next year’s GDP growth also being 2.5pc lower.

Depending on the success of the vaccine roll-out,  the SPU forecasts that GDP will expand by 4.5pc this year and 5pc next year .

Ireland’s Modified Domestic Demand, a measure of domestic activity that does not take into account the effects of multinational companies, is projected to grow by 2.5pc this year and 7.5pc next year.

It predicts Ireland’s economy will allow for “substantive and sustainable” recovery to begin if there is a “significant but cautious” easing of restrictions over the summer.

Meanwhile the economy has been protected from a more severe and long-lasting economic impact from the pandemic because the shock was not preceded by a build-up of borrowing, according to new research by the Central Bank.

The analysis of "growth at risk", a measure of the impact of today's circumstances on future growth, shows that the Covid-19 downturn will not be as deep or as long as the financial crisis that started in 2008.

The authors of the research write that this is because, in the lead-up to the pandemic, Ireland was at a more resilient starting point than at the end of the Celtic Tiger.

Prior to Covid, there was less evidence of systemic financial vulnerabilities, such as over-borrowing by consumers and businesses, and little sign of problems in the financial system. This means that the Irish economy is likely to bounce back more quickly and strongly from the Covid downturn than it did following the crash of 2008.

Irish Independent