A disrupted labour market
Forecasting remains incredibly difficult due to the volatile spread of the pandemic, shifting time frames on reopening and the evolution of policy support. The latest EY Economic Eye forecast is for a contraction of -10.8% in ROI and -10.4% in NI. Slightly stronger than expected quarter one data and the acceleration of opening dates perhaps suggests that, if current trends continue, the next forecast revision could be upwards.
GDP remains a very imperfect measure and the labour market is the most visible indicator of the COVID-19 damage. At the time of writing, adjusted unemployment for July was nearly 17% in ROI and estimated at c.7% in NI. The apparently large differential reflects a difference in policy response, with furloughing more widespread in NI and the COVID-19 PUP scheme, which is counted in the adjusted unemployment figure, unique to ROI.
Our central forecast suggests a loss of 38,000 jobs in 2020 in NI and 225,000 in ROI (this figure is a four quarter average in each case, losses at points in the year will be higher). A rising working age population will also add upward pressure to unemployment as new school and college leavers look for work. Over 40% of jobs across the island were either lost or in direct receipt of government support in May, highlighting similarity in impact despite the very different economic structures across the two economies.
Different policy responses across the island make direct comparisons of the labour market complicated. As lockdown eases, increasing numbers of people in ROI are coming off the PUP scheme. However, many of those are moving across to the Temporary Wage Subsidy Scheme (TWSS).
In NI, there is no PUP scheme and though unemployment has risen sharply, by over 32,000, the greater concern is how many will drop off furlough or self-employed support into unemployment later in the year. Our forecast predicts roughly one-fifth of people on furlough or self-employed support in NI will fall into unemployment by the end of the year. In ROI, roughly one-quarter of those on PUP and one- tenth on TWSS are also expected to be out of work by the end of the year.
COVID-19 has had a more widespread impact than most commentators originally expected. Every sector has suffered job losses and needed to avail of government support, either through wage subsidy, direct grants, loans, deferral of tax bills, or other forms of aid. The July Stimulus package in ROI contained no less than 50 separate measures, and forthcoming budgets later in the year will likely add many more. The fact that ROI was in a position to spend as much as it is planning to do, is testament to the economic recovery over the last five years and the global perception of the Irish economy as one that has the ability to bounce back quickly.
It would have been impossible for certain sectors, such as arts and recreation, to have maintained employment without a wage support scheme, with parts of the sector still unable to operate due to social distancing. Our base assumptions assume no nationwide shutdowns later in the year, although it looks increasingly likely, from international experience, that localised lockdowns will, sadly, be something both economies may have to contend with.