Bernard Durkan (Kildare North, Fine Gael)
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231. To ask the Minister for Finance the extent to which he remains confident in the ability of Ireland to remain competitive in the services and manufacturing sectors in the future given the various challenges affecting it; and if he will make a statement on the matter. [39481/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Covid-19 restrictions introduced to suppress the spread of the virus in the second quarter of this year resulted in a significant contraction in economic activity. All sectors of the economy recorded declines apart from the foreign dominated multinational industry sector, which includes pharmaceutical manufacturing. This sector has proven to be resilient, growing by 16 per cent in the second quarter. However, exports from predominately domestic industries have suffered as a result of the pandemic, with the value of non-pharmaceutical exports (excluding aircraft) declining by 11 per cent year-on-year in the second quarter. Additionally, a number of services sectors suffered significant contractions. In particular, the hardest hit sub-sector of Arts and Entertainment declined by two-thirds, with the labour intensive Distribution, Transport, Hotels and Restaurants declining by a third. As the economy reopened during the summer, however, the services sector showed some signs of recovery.

The recent move to Level 5 Covid-19 measures is also likely to have a disproportionate impact on the services sector while the manufacturing sector, as an ‘essential’ activity, is expected to be largely unaffected. As the services sector often relies upon close physical interaction with consumers, when the current set of restrictions are relaxed these businesses are likely to reopen at reduced capacity to ensure compliance with public health guidelines. There may also be changes in consumer preferences due to concerns relating to virus transmission, resulting in lower demand for these services. Therefore, the recovery in these services sectors is likely to be gradual.

Nevertheless, the Covid-19 pandemic is unlikely to significantly impact the relative competitiveness of the Irish economy on the world stage as the global economy is experiencing the pandemic in a similar way. Indeed, the downward pressure on prices and the additional slack in the labour market as a result of the pandemic means that inflationary pressures are not likely to impact on the competitiveness of the Irish economy in the short to medium term.

The extent of the recovery across the services and manufacturing sectors over the short to medium term is likely to be determined by a number of factors, including the future path of the virus, the availability of a vaccine, changing consumer preferences, as well as the future trading relationship with the UK.