Pace of recovery in question as Delta variant creates further uncertainty

What does the Delta variant mean for the economic recovery? It will certainly cause delay. Numbers on the Pandemic Unemployment Payment fell from 310,000 to 228,000 through June, but dropped by just under 6,900 last week, presumably due in part to delays in reopening parts of the economy.

In a note to clients this week, stockbrokers Davy said that the clear message was that the jobs gains seen since the start of reopening in April were “tailing off”. The note pointed to a fall in a measure of services output in May as further evidence that the rebound may take longer than expected.

In an interview on Friday, Central Bank governor Gabriel Makhlouf said he felt that the arrival of Delta would delay recovery rather than fundamentally change it. However, he added that the rapid spread of the variant showed the extraordinary level of uncertainty facing economic forecasts.

A range of forecasts, made before Delta hit, pointed to a sharp bounce in the economy in the coming months. Now the pace of this recovery is in question.

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Tortured jobs

The hope is that as vaccination spreads across the population, the case numbers fall back and we are spared the arrival of further more difficult variants. But in the interim the tortured job of trying to get indoor hospitality back open shows how difficult this is.

It is a tricky backdrop for the publication of the Department of Finance’s summer economic statement next week. This will assume that restrictions are largely lifted by the end of the year, with the general supports now in place replaced by some less costly sectoral measures.

But the huge uncertainty in forecasting continues. And there will be longer-term consequences, too.

The supply side of the domestic economy has taken significant damage – and huge uncertainty still surrounds some sectors, notably aviation. Demand will change too – certainly in the short term, but also quite possibly in the longer term via the rise of trends like online shopping.

More than a year into the pandemic, the path forward is still clouded, even if, encouragingly, there have been signs that if restrictions can be lifted, then growth will follow.