PUP, Brexit, Trade and Exports – ESRI Quarterly Report
Despite lingering uncertainty surrounding the Covid-19 pandemic, global economic growth is expected to be strong this year, according to the Institute for Economic and Social Research (ESRI) Quarterly Economic Commentary, Winter 2021.
He reports that Ireland’s gross domestic product is expected to increase by 13.6%, largely due to activities linked to multinationals, in particular high export figures.
Meanwhile, the national economy is expected to grow by 6.2% in the current year.
In 2022, ESRI expects continued strong performance from the economy.
PUP and agriculture, forestry and fishing
An overview of Pandemic Unemployment Benefits (PUP) – introduced to provide short-term emergency income support – taken one day in November 2021, is of interest to stakeholders in the agricultural sector.
That day – November 30 – 900 people from the agricultural, forestry and fishing sectors benefited from the PUP.
The category, which also includes mines and quarries, represented only 1.6% of the total beneficiaries at that date.
These 900 recipients are among the approximately 54,800 people who received the PUP on November 30, a drop of approximately 550,800 in the number of PUP recipients from May 2020.
Trade and Brexit
While strong economic growth is expected next year, the report outlines some potential risks and one of them concerns possible trade complications between the UK and Europe, due to Brexit.
The report indicates that two possible scenarios could arise, described as follows:
- UK tries to renegotiate the trade deal and / or does not respect non-tariff barriers;
- Section 16 is triggered by the UK and faces retaliatory tariffs, resulting in a wider trade war.
In the first scenario, the report says, there would be an increased sense of uncertainty about the future of trade and the controls between goods leaving and entering the EU from Great Britain (GB) would likely have a negative impact on domestic investment.
Another concern, according to the report, is the possibility that increased trade costs will spill over into consumer prices, especially for food products.
In the event that Article 16 is triggered – although unlikely according to the report – there would be a significant negative impact on overall economic activity.
Sharp increases in trade costs due to tariffs and controls on goods entering Britain as well as increased transport times would disrupt supply chains, leading to lower imports and exports from Ireland.
Exports and imports
Regarding exports, the report indicates that they increased by 1.3% in the third quarter of 2021 compared to the second quarter of 2021, in seasonally adjusted data.
This meant that Irish net exports in the third quarter were EUR 51.8 billion.
Among products included in Irish goods exports, medicines and pharmaceuticals accounted for the largest share – 36.6% in the third quarter of 2021.
Exports of machinery and transport equipment increased by 37.3% per year and 19.3% per quarter.
Exports of miscellaneous manufactured items and total food and live animals also increased on a quarterly and annual basis.
In terms of imports, machinery and transport, which account for 39% of imports, decreased by 8.3% per quarter but increased by 18.5% per year.
Quarterly declines were also observed in imports of medicinal and pharmaceutical products (-10%) and in all food and live animals (-1.1%).
However, comparing the imports of product groups between 2019 and 2021, we find that machinery and transport equipment as well as food and live animals registered the largest declines, at 27.3% and 29.1 %, respectively.
Unemployment and inflation
The unemployment rate is expected to fall to 7.2% in the fourth quarter of 2021 and to 16.1% on average for 2021 overall.
Unemployment is expected to decline further in 2022 and average just under 6% for the year, assuming there is no major deterioration in the Covid-19 situation. However, stricter public health measures to manage rising infection levels pose a “considerable” risk for 2022.
ESRI expects inflationary pressures to ease significantly in the second half of 2022, with price increases next year expected to be larger than previously thought.
Currently, ESRI expects an inflation rate of 2.4% in 2021 and 4% in 2022, with inflation falling to almost 2% by the fourth quarter of 2022.
The pace of economic recovery contributed to a smaller than expected deficit in 2021.
It comes at a time when large investments are likely in the coming years in areas such as housing, climate change and healthcare.