The speed at which the economy can recover will depend on the success of the vaccination programme, according to a key economic document to be published by the Government on Wednesday.

The Stability Programme Update (SPU), which must be submitted to the European Commission this month, includes updated economic forecasts and an assessment of the Irish economy.

The document will predict GDP growth of 4.5 per cent this year and 5 per cent next year.

Hospital Report

However, it will also say that modified domestic demand, which the Department of Finance often describes as a more useful indicator of domestic economic conditions, is likely to grow by significantly less this year – just 2.5 per cent. However, it expects growth of 7.5 per cent next year by this measure.

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The document, which is a requirement under EU budget rules and is to be published by the Minister for Finance Paschal Donohoe and the Minister for Public Expenditure Michael McGrath on Wednesday, will also lay out a pessimistic scenario in which the current restrictions remain in place for a long period, which will result in lower growth, higher unemployment and more borrowing.

Projections will show that after recording a General Government Deficit of 5 per cent of GDP last year – a figure which translated into €18.5 billion in cash terms – a further deficit of 4.7 per cent of GDP is likely for this year. It is predicted to fall to 2.8 per cent of GDP next year.

Unemployment

It says that employment should increase this year by about 80,000 before jumping next year by 225,000 as the economic recovery gathers speed.

The level of unemployment, however, remains high – about 16.25 per cent this year when recipients of the pandemic unemployment payment are included, before declining to 8.25 per cent next year as the economy is fully reopened. However, the level of employment will remain below its pre-crisis peak until 2023.

The SPU is prepared on a “no policy change” basis, and no new policies are included.

However, the Government plans to publish an economic plan over the summer which will outline targets for borrowing and set out a strategy over the coming years.

Officials hope that stronger economic growth later this year and in the coming years can do most of the “heavy lifting” in reducing the budget deficit, avoiding the need for politically difficult reductions in Government spending.