Business

Danske Bank warns economy may not recover to pre-coronavirus level for three years

Danske Bank has said the north’s economy will likely contract by around 7.5 per cent this year, but an extended lockdown and failure to deliver a Brexit deal will hit economy further.
Danske Bank has said the north’s economy will likely contract by around 7.5 per cent this year, but an extended lockdown and failure to deliver a Brexit deal will hit economy further. Danske Bank has said the north’s economy will likely contract by around 7.5 per cent this year, but an extended lockdown and failure to deliver a Brexit deal will hit economy further.

THE north’s economy will likely contract by around 7.5 per cent this year, but could bounce back by five per cent next year, according to Danske Bank.

The forecast from Northern Ireland’s largest lender is less severe than some of the recent scenarios proffered by economists, which predict that Covid-19 could hit GDP (gross domestic product) by up to ten per cent.

But the bank’s chief economist Conor Lambe has said that total economic output here may not return to pre-coronavirus levels until early 2023.

He is also forecasting that unemployment could double from near record low levels to around five per cent for 2020, with sharper peaks in the second and third quarters.

Danske Bank’s forecast is based on the assumption that the current lockdown remains in place until somewhere between the end of May and the middle of June before gradually being lifted, with some social distancing measures remaining in place for a longer period of time

But the lender has warned that the continuation of the lockdown into the second half of the year, and the failure to conclude a Brexit deal by the end of 2020, will result in a more severe contraction in the economy.

Analysis by Ulster University’s Economic Policy Centre recently forecast that the economy could contract by almost 10 per cent if lockdown conditions continue until the end of June.

Earlier this month, EY economist Neil Gibson forecast declines ranging from 6.7 per cent to 10 per cent, based on restrictions being lifted between the end of May and the end of August.

All the forecasts directly link the restrictions on movement to lower consumer spending and business investment dropping amid severe cash flow issues.

Conor Lambe said it is clear that the decline in economic activity due to the will be “staggering”, impacting an economy which was already sluggish before the crisis began.

Danske Bank is anticipating that the hospitality and arts sector will take the worst hit this year, contracting by around 17 per cent, with the education sector falling by 14.2 per cent.

Manufacturing (12 per cent), construction (7.7 per cent) and wholesale and retail trade (8.5 per cent) will be badly hit.

“However, once the lockdown measures begin to be gradually lifted we should see the beginning of a recovery, with the range of recently announced government policy measures supporting the economy to get moving again,” said Mr Lambe.

“This recovery should continue into next year and we expect growth in 2021 to reach around five per cent.

“It is important to say that, despite the expected return to positive annual growth rates from 2021, total economic output may not return to its pre-coronavirus level until late in 2022 or into 2023,” said the economist.

“In addition, these forecasts are provided in a climate of extremely high uncertainty and the risks around our numbers are weighted to the downside.”

But Danske Bank has warned that it is possible that aggregate demand in the economy may not recover as quickly as it expects, with financial conditions tightening further, limiting the extent of any recovery.

“This could happen if a large number of firms go out of business and there is an even higher than expected rise in unemployment.

“There is also the risk of lockdown measures continuing into the second half of 2020 or having to be reinstated.”