In this weeks blog, NERI Co-directors, Dr Tom McDonnell and Paul Mac Flynn discuss economic recovery after the pandemic. The same level of intensity of resources that went into preserving our economy in 2020 must be mobilised for reconstruction in years to come.
The NERI's work programme for 2021 will focus on economic growth, income inequality and sustainability.
2021 promises to be a grim but rollercoaster year for the economy. Economic activity is likely to remain subdued on both parts of the island until we achieve mass vaccination. It is abundantly clear now, as it has been throughout this period, that the key to economic recovery lies in the swift and durable resolution of the public health crisis. All sectors of the economy and society should be mobilised toward delivering a safe and equitable mass vaccination programme in the first half of this year.
The realisation of Brexit and the difficulties it creates will generate further headwinds to growth. While the first few months of 2021 have already shown the fragility of supply chains in the post-Brexit economy, the most significant and enduring impacts of Brexit lie in the structural change that will occur over the years to come. The Northern Ireland protocol was designed to protect existing economic arrangements on the island of Ireland. However, the economic challenges of the coming decade require more than just continuity. The challenge remains that of fostering sustainable and inclusive growth for both economies on the island of Ireland.
Nevertheless, the second half of 2021 offers the prospect of a very sharp recovery. Household savings increased significantly in 2020 and pent-up demand is likely to trigger a major increase in consumption once people feel safe again.
Such a recovery is, however, predicated on governments avoiding the mistake of removing government supports and forbearance for households, workers and firms before all relevant coronavirus related constraints are removed. Preserving productive capacity must take precedence over government budget deficits. In any event, restoring pre-crisis employment levels will do most of the work needed to restore sustainability to the public finances.
We must also accept that the end of this public health crisis will not see an automatic return to the economy of 2019. Despite the unprecedented levels of state support to both workers and businesses, it is likely that large section of our economy will not have survived the crisis period. The same level and intensity of resources that went into preserving our economy in 2020 must be mobilised for reconstruction in the years that follow.
The NERI's 2021 work programme will focus on the triple bottom lines of economic growth, income inequality and 'sustainability' - whether economic sustainability, political/social sustainability or environmental sustainability. In particular, we will focus on the potential for reform to the underlying economic models on the island and the implications for the mixed economy and underlying welfare state.
The pandemic has been a terrible human and economic shock. It has shone a light on many of the flaws in our current economic and social model - from sick pay, to childcare, to income inequality, to under resourced public services - the list goes on and on. We can add housing, healthcare, the environment, and the inclusivity of growth to the list of ongoing policy challenges.
We need a new and evidence based social dialogue to identify and satisfactorily resolve these problems. There should be no going back.