Regional Economic Impact of COVID-19: 2020 in Economic Statistics

Summary

Pre-pandemic economic structures

As detailed throughout the report, it seems COVID-19 has exacerbated pre-pandemic structural issues in the Western Region and AEC. These issues include the structure of enterprise and concentrated employment in tourism focused sectors. Indicators of regional employment and output exposure suggest the Western Region and AEC counties are heavily exposed to COVID-19. The COVID-19 shock reiterates the need for further diversification of the regional employment base. Incentivising entrepreneurship and innovation activity should be a key regional priority. The WDC submission to the Seanad Public Consultation Committee on Small and Medium Sized Businesses in Ireland emphasised the importance of the removal of regional entrepreneurial barriers. The region’s quality of life makes it attractive to knowledge intensive and creative sector workers, ensuring the availability of the facilities and services that these workers require is important. Growth opportunities to expand the knowledge intensive sectors, will be key to the region’s economic future. The expansion of remote working may offer opportunities to grow regional employment across those sectors. The WDC is the co-ordinator of the AEC Enterprise Hubs Project to create an interconnected community hub network. Infrastructure is a fundamental building block for regional development. Key infrastructure projects for the Western Region are detailed in the WDC’s recent submission to the National Development Plan consultation. The WDC argue that two I’s (Infrastructure and Innovation) and the ‘3Es’ (Enterprise, Employment and Education) are the key levers for effective regional development. When these three areas complement and support each other, they drive regional growth.

Impact on Labour Market

The regional dynamics of the COVID-19 labour market shock are influenced by the pre-pandemic economic structures. Given these structures it should be unsurprising in hindsight that the Western Region and AEC counties were severely exposed to a comparatively large negative labour market impact. The summer reopening phases coincided with a sharper reduction in Pandemic Unemployment Claims in those counties initially more adversely affected. Consequently, much less regional, and within-region variation in the labour market emerged. The re-emergence of increased restrictions coincided with a re-emergence of the initial regional trends. The analysis of gender and age dynamics suggests that females, particularly younger females as well as younger males within the Western Region and AEC may be more vulnerable to the COVID-shock. The overrepresentation of women in terms of PUP claims, and the vulnerability of younger workers has previously been noted at the national level. This report shows that these issues may be more pronounced at the regional level and should be considered in the context of labour market activation programmes. The Western Region and AEC counties generally held a comparatively lower share of TWSS supports and the Northern and Western Region generally held higher COVID-adjusted unemployment rates and job loss rates indicating a worry in terms of comparatively high eventual unemployment rates.

Impact on Incomes and Output

With and without state income supports the Northern and Western Region was found to have held the largest declines in household incomes during 2020. The atypical nature of the COVID-19 shock means that it is sensible for policy to address both the supply and demand sides of the economy. The priority on the supply side is to find ways to open up the economy in a safe manner. On the demand side, the priority is that sufficient consumer confidence and certainty exists such that when the economy re-opens individuals are willing and able to engage in economic activity. The safe re-opening of the economy as quickly as possible is imperative, particularly given the level of exposure faced by the Western Region and AEC economy detailed in this report. In the short term, fiscal policy should continue to aim at temporary and targeted support to aid incomes and businesses in affected sectors, to improve healthcare capacity, test and trace systems and speedy vaccine rollouts. In this sense, fiscal policy might be thought of as disaster relief rather than traditional demand-side fiscal stimulus. Fiscal policy may also be appropriate for capital investment in long term projects such as energy, climate action, education, and infrastructure. These investment priorities are of particular importance for the Western Region given the sluggish recoveries in employment, output and household incomes from the last economic crisis that have contributed to economic divergence from national growth levels.

Impact on Housing

The initial supply side reaction in the housing market was a reluctance to reduce prices and instead to withdraw housing from the market. Nationally, the decline in sales volumes has generally been larger than in the Western Region and AEC counties. As the pandemic unfolded, the contraction in supply remained evident while demand remained strong. A reduction in supply coupled with strong demand leads to increased prices.  Regionally, the CSO residential Property Price Index (RPPI) showed a slight decline in Dublin and the Mid-West but an increase in all other regions. The largest increases were in the West and South-West Regions. The Dublin trend and knock-on impacts may reflect the increase in remote working outside of the more densely populated areas. However, this trend is not clear and is difficult to distinguish with aggregated regional data. The rental market has been less volatile and nationally there has been considerable rent moderation. The Western Region and AEC counties have been amongst the counties with the largest rent increases (Mayo, Leitrim, Limerick, and Roscommon) but also the largest rent declines (Clare and Sligo).

The views expressed here are those of the author and do not necessarily represent or reflect the views of the WDC

Luke McGrath
Economist