Many sectors of the domestic economy have been severely affected, with wide-scale job losses in areas such as accommodation, food, arts and entertainment.
The unemployment rate stood at 14.7 per cent in September, which is much higher than the pre-pandemic level.
Household spending and modified investment declined by 22 per cent and 24 per cent respectively in the second quarter.
The Economic and Social Research Institute (ESRI) report also found that, on the other hand, exports have held up “very well” driven by the strong performance of medicinal and pharmaceutical products and computer services.
In light of the strong performance of the export sector, and the spending rebound seen over the summer months, the ESRI forecast for GDP growth has been revised up, with a 1.8 per cent decline forecast for 2020.
It says its outlook for 2021 is more uncertain due to the combined risk of ongoing Covid-19 restrictions and a no-deal Brexit.
In the event that there is a free trade agreement in place between the UK and the EU next year, the Irish economy is expected to grow by 6.3 per cent, the report finds.
“However, in the event of a no-deal Brexit, the growth rate forecast is just 3.3 per cent,” the report added.
“An analysis in the commentary also looks at the combined long-term impact that Covid-19 and Brexit could have on the Irish economy over the next 10 years.
Looking forward to 2021, we are facing the perfect economic storm of a no-deal Brexit coupled with ongoing Covid-19 restrictions
“In terms of the government finances, expenditure has already increased rapidly this year and is expected to remain elevated into 2021.
“While tax receipts are expected to decline substantially as well, the performance of some taxation items have been significantly better than expected.”
Corporation tax receipts have been particularly strong, growing by almost 25 per cent in the year to August.
Additionally, the decline in income taxes has been muted, likely a result of the progressive nature of the tax system and the concentration of job losses in lower paid employment.
Overall, a budget deficit of just over €25 billion is forecast for 2020.
This deficit will fall to €15 billion next year as tax receipts are expected to improve in 2021 while government supports are wound back, the report added.
Kieran McQuinn, of the ESRI, said: “While the impact of Covid-19 on headline Irish economic indicators is much less than many other European countries, it is clear that the virus has had a devastating impact on many sectors of the domestic economy.”
Conor O’Toole, of the ESRI, said: “Looking forward to 2021, we are facing the perfect economic storm of a no-deal Brexit coupled with ongoing Covid-19 restrictions.
“While a rebound could be expected next year even with public health restrictions, any recovery would be stopped in its tracks by a no-deal Brexit.”
