Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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130. To ask the Minister for Finance his Department’s current projection of the extent to which the economy will contract in 2020; and if he will make a statement on the matter. [39187/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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At the time of Budget 2021, my Department projected that GDP would decline by -2½ per cent this year, with (modified) domestic demand - a more appropriate indicator for domestic economic conditions - set to decline by just over 6 per cent. These projections were based on the assumption that targeted measures would be introduced in response to any further pick-up in the Covid19 infection rate; crucially, it was assumed that there would not be a second national lockdown. However, in light of the deteriorating public health situation, the country moved to Level 5 of the Plan for Living with Covid19 on October 22^nd.

A downside scenario analysis published in the Budget estimated that more stringent restrictions in the fourth quarter would see GDP contract by about -3½ per cent this year, about 1 percentage point lower than in the baseline scenario.

Although the fall-out from the latest restrictions will undoubtedly be significant, the economic impact is unlikely to be as severe as in this scenario or as that seen during the first lockdown earlier this year, as construction, education, childcare and most manufacturing activity remain open. Indeed, while some of the ultra-high frequency indicators that the Department monitors, such as payment card transactions and mobility data, have fallen since the restrictions were introduced, the falls have not been as severe as in the spring.

The introduction of these restrictions has, however, meant that many additional people now rely on income support schemes. The number of recipients of the Pandemic Unemployment Payment (PUP) stood at 352,000 as of November 23rd – an increase of around 108,000 since level 5 restrictions were introduced. However, the rate of increase in the number of recipients has slowed in recent weeks and with more sectors remaining open compared to the spring, the number of people claiming the PUP should remain well below the peak of 600,000 recorded in early May.

Additionally, while the recent move to level 5 means that the contraction of the economy this year may be greater than anticipated at the time of the Budget, it is possible that a better-than-expected performance in the third quarter, as suggested by retail sales, construction and exports data, could offset some of the impacts of these restrictions on the overall annual figures.