Minister Donohoe publishes Stability Programme Update 2021

14th April, 2021

  • GDP is forecast to expand by 4½ per cent this year and 5 per cent next year.
  • Modified Domestic Demand (MDD), a more useful indicator of domestic economic conditions, is projected to grow by 2½ per cent this year and 7½ per cent next year.
  • Economic recovery over the second half of this year and into next year rests on the success of the vaccination programme and the assumption of an easing of public health restrictions. In a downside scenario the Irish economy would be approximately 4½ per cent smaller by the end of next year than it would under the baseline forecasts.
  • The labour market has been borne the brunt of the pandemic with the unemployment rate projected to average 16¼ per cent this year and 8¼ per cent next year.
  • The level of employment is projected to increase by around 80,000 this year and 225,000 jobs next year, but will still remain below its pre-crisis peak until 2023.
  • The fiscal forecasts are prepared on the basis of existing policies.
  • After recording a General Government Deficit of 5.0 per cent of GDP last year, a further deficit of 4.7 per cent of GDP is in prospect for this year before falling to 2.8 per cent of GDP next year.
  • Debt-to-GNI* ratio projected to rise to 112 per cent this year but is set to decline to 107 per cent next year.


The Minister for Finance, Paschal Donohoe TD, today (Wednesday) published the Government’s Stability Programme Update for 2021.  This document sets out the Department of Finance macroeconomic and fiscal forecasts for the period 2021-2025.  The macroeconomic forecasts underpinning the SPU were endorsed by the Irish Fiscal Advisory Council on 7th April (a legal requirement).


Commenting on the figures, Minister Donohoe said: ‘The publication of these economic and fiscal projections means that we now have a medium-term trajectory against which Government can assess and benchmark the evolving situation and calibrate policy accordingly’.


“The speed at which the economy can recover will depend on the success of our vaccination programme.  This is being significantly ramped-up in the second quarter, and should allow for a more significant but cautious easing of containment measures over the summer.  This will allow for a substantive and sustainable recovery to begin.


“My Department is projecting that Modified Domestic Demand – the best indicator of economic trends – will increase by 2½ per cent this year, accelerating to 7½ per cent next year, as pent-up consumer and business demand is released.  Excess household savings, built up during the pandemic, will be partly unwound, further supporting spending.”


The economic fall-out from the pandemic is most evident in the labour market.  The Department is projecting an average unemployment rate of around 16¼ per cent this year, before declining to 8¼ per cent next year as the economy is fully re-opened.  The level of employment is projected to increase by around 80,000 this year and 225,000 next year, although the level of employment will still remain below its pre-crisis peak until 2023.


On the fiscal front, the Government has deployed its balance sheet to support workers and firms and to cushion the impact of the pandemic.  After a deficit of 5.0 per cent of GDP last year, a further deficit of 4.7 per cent of GDP is in prospect for this year.  As a result, public debt has increased from €204 billion immediately pre-pandemic to an estimated €239 billion this year or 112 per cent of GNI*.  As the economy recovers next year, the deficit will improve to 2.8 per cent of GDP, with the debt ratio falling to 107 per cent of GNI*.


On the public finances, Minister Donohoe said: ‘We are projecting an improvement in the public finances next year.  There are, however, clear downside risks for the public finances.  In particular, international corporate tax reform could weigh more heavily on this revenue stream than is currently assumed.  Having said that, the public finances are in a much better position to absorb the expected shock to corporate tax revenue than, say, a decade and a half ago.  The tax base is much wider than prior to the global financial crisis and, importantly, there is time to build up the resilience of the public finances before international reforms move to the implementation phase’.


Minister Donohoe added: ‘The impact of the pandemic on the domestic economy and the public finances has been severe. However, the acceleration of the vaccination programme means that the beginning of the end is, hopefully, now in sight.  The strength of our economic model and more importantly, our people, clearly demonstrate that we should face this current period with optimism.  We can and we will rebuild our economy, get our people back to work and safely emerge from the pandemic.”


Minister for Public Expenditure and Reform, Michael McGrath said: ‘Across 2020 and 2021, we have provided over €28 billion for various Covid related spending programmes, nearly half of which are direct income supports via the Pandemic Unemployment Payment and Wage Subsidy Schemes.  This represents real cash in people’s pockets to mitigate the effect of an unprecedented health emergency. I believe the underlying strengths of the economy give us cause for optimism that there will be a very considerable recovery in our economic fortunes starting in the second half of the year. This will help get thousands of people back to work, improve tax receipts and reduce Covid related expenditure’.


“The Draft SPU charts a course for an orderly reduction in the deficit which has arisen due to the essential programme of spending we have undertaken in response to the Covid pandemic.  We will continue to invest considerable sums in much needed capital projects through this period, and I look forward to the conclusion of the review of the National Development Plan in the coming months which will involve setting out an ambitious capital investment programme out to 2030. In the immediate term, the government will honour its commitment that there be no cliff edge end to the economic supports at the end of June. We are conscious that continued support will be required to assist sectors of the economy on the path to recovery and we will set out these plans in the coming weeks.” 



Notes to Editors:

  1. The Stability Programme Update is a legal requirement: all Member States must submit to the European Council and Commission by end-April each year.
  2. The document is prepared on the basis of the policy position set out in Budget 2021, and includes all announced policy measures. It does not include any additional measures.
  3. In a more severe scenario where current, stringent restrictions need to remain in place for a prolonged period, GDP growth this year would be almost 1 percentage point lower than the main baseline projection, and would be 2½ percentage points lower next year. As a result, by the end of next year, the Irish economy would be approximately 4½ per cent smaller than it would under the baseline forecasts.
  4. The macroeconomic analysis and forecasts contained in this document are based on data available to end-March 2019. The fiscal projections are based on data to mid-April. The presentation provided to the IFAC is available on the Department of Finance website.

  1. The document is accompanied by the latest version of the Department of Finance’s Economic Insights series. This features three short notes relating to the impact of the pandemic to date and possible legacy effects. These cover real-time indicators and how they can explain economic developments during the pandemic, the operating of the so-called ‘automatic stabilisers’ in Ireland, and a discussion on the possible ‘scarring’ effects of the pandemic on future growth.

  1. The unemployment rate for 2021 is based on the CSO Covid-adjusted unemployment rate which adds all PUP recipients to the standard unemployment rate. For 2022 onwards, the standard and Covid-adjusted unemployment rates are assumed to converge.
  2. Budget 2021 set out a General Government Deficit forecast of -5.7% of GDP for 2021. The improvement outlined in the SPU forecast is due to the updated assumptions associated with 2021, i.e. an orderly Brexit, and the rollout of a national vaccination programme. However, these factors have also been offset by the lockdown since the beginning of the year.

 Datafile on SPU charts:

 Datafile on past forecast:

 Economic Insights – that includes 3 papers, and:

 Real-time data chartpack:

 The SPU main doc:

 SPU summary doc, and

 SPU presentation to IFAC