Danske Bank offers more upbeat economic forecast on back of vaccine roll-out

Queues in the mass vaccination centre at Belfast's SSE Arena. Picture by Hugh Russell.
Ryan McAleer

DANSKE Bank has offered a more optimistic forecast for the north’s economy on the back of the success of the Covid-19 vaccination programme, predicting economic activity will return to pre-pandemic levels in the second half of 2022.

Northern Ireland’s biggest lender said while it believes the economy continued to contract in the first quarter of 2021 due to the continuing Covid-19 restrictions, it now believes it will bounce back by 4.8 per cent through the rest of the year.

And it expects that growth to accelerate to 5.8 per cent in 2022.

Danske Bank had downgraded its 2021 outlook at the end of last year, suggesting the economy may only recover by four per cent this year after contracting by a massive 11 per cent in 2020.

It represented a significant reduction on the seven per cent growth forecast it made for 2021 during July 2020.

But the lender is now offering a slightly more upbeat assessment.

The hardest hit sectors, such as accommodation and food service are expected to bounce back by 17.6 per cent, with the arts, entertainment & recreation sector recovering by 11.4 per cent.

But Danske warned the growth only represents a partial recovery for the sectors, which were decimated during the pandemic.

After initially forecasting that unemployment could hit 6.7 per cent in 2021, Danske Bank has revised that figure to five per cent on the back of the extension of the UK Government’s furlough scheme.

Total jobs are expected to decline by 1.9 per cent in 2021, before returning to grow by one percent in 2022.

Hospitality and arts sectors are expected experienced much higher levels of unemployment in 2021.

Danske expects unemployment to increase marginally again into 2022.

The bank’s chief economist, Conor Lambe, said: “While we expect the unwinding of the current restrictions to proceed cautiously, we think that the gradual reopening of the economy will see economic output begin to grow again from the second quarter of 2021 onwards.

“Measures put in place by policymakers, such as the recently extended Furlough scheme, have proven to be a key source of support for the economy since the start of the pandemic and are also expected to play an important role in the recovery”

But he warned the labour market will continue to deteriorate, with the continued high levels of uncertainty likely to lead some consumers and businesses remaining somewhat cautious with their spending decisions.

“The coronavirus pandemic remains the most significant risk facing the economy. Considerable uncertainty still exists around how the re-opening of the economy will impact coronavirus case numbers and the pace at which the restrictions can be eased.

“The emergence of new variants of the virus is also a significant risk and could impact the unwinding of the restrictions, or potentially lead to restrictions needing to be reintroduced later in the year.

“In addition, high uncertainty related to the pandemic may lead to weaker consumer and business confidence and more precautionary spending and investment habits.”

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