Bernard Durkan (Kildare North, Fine Gael)
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92. To ask the Minister for Finance the extent to which economic fundamentals remain positive notwithstanding the ravages of Covid-19; and if he will make a statement on the matter. [39137/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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The suspension of all ‘non-essential’ economic activity during the second quarter of the year resulted in the Irish economy suffering the largest contraction on record, with a contraction in GDP of over 6 per cent relative to the previous quarter. Modified domestic demand, perhaps the best indicator of domestic economic activity, declined by 16 per cent while the unemployment rate – including recipients of the Pandemic Unemployment Payment (PUP) – peaked at 30 per cent in April. However, as restrictions were eased over the summer the economy began to recover with the number of unemployed falling steadily and other indicators, including retail sales, showing a return to pre-pandemic levels of activity.

At the time of the Budget, my Department projected that GDP would decline by -2½ per cent this year. This was based on a number of assumptions, including that there would be no return to a national lockdown.

However, on the 22nd October the country entered Level 5 of the Plan for Living with Covid-19. My Department estimated that these restrictions would see GDP decline by 3½ per cent this year around 1 percentage point lower than the baseline scenario. While the impact of this move to increased restrictions is likely to be significant, I am optimistic that the economic fall-out will not be as severe as in this scenario, as construction, education and most manufacturing activity will remain open under these restrictions.

Next year, my Department are projecting that the economy grow by around 1¾ per cent. This projection is based on the assumption that the UK would leave the current transition period with the EU without a trade deal being agreed and that a widespread vaccine would not be available before the end of 2021. Of course, if these assumptions do not come to pass then there will be some upside to this projection.

As we chart our way forward through these uncertain times, careful management of the public finances is needed. Indeed, finding the correct balance between protecting the health of our population while also supporting the economy will be crucial.