The Economic and Social Research Institute has lowered its forecasts for growth in the economy this year, due to ongoing Level 5 pandemic restrictions.

In its Quarterly Economic Commentary, it has also significantly reduced the number of house completions it expects this year.

It comes as Covid restrictions have continued for a lot longer than anyone expected. It has meant less economic activity and fewer people in work.

The ESRI has knocked half a percentage point off its forecast for economic growth this year as a result.

It still expects the economy to stage a recovery in the second half of the year, delivering growth of 4.4%.

But unemployment is forecast to remain high for the year at 16.7% and not to recover to pre-pandemic levels until 2023.

It also forecasts that housing completions this year will tumble to 15,000, a 25% drop on last year. It describes housing supply as one of the long-term economic costs of Covid.

Speaking on RTÉ's Morning Ireland, ESRI research professor Kieran McQuinn said one of the longer impacts of the pandemic is on housing supply, which takes a long time to recover from an adverse shock. 

In normal times, he said, around 25,000 units would be expected to be built this year, which would have been an increase on previous years, but it now seems like that "we will be lucky to get 15,000 units this year and even this is on the optimistic side". 

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Professor McQuinn warned that this imbalance between supply and demand is going to be exacerbated. 

He said there has been a significant increase in the savings ratio in the economy over the last year and the fear is that this will lead to increased inflation in house prices. 

The ESRI also expects there to be another significant deficit in the public finances this year of €18.5bn.

However, it points to new thinking on government debt, which calculates a country's ability to carry higher levels of debt based on lower interest rates.

The institute says the Government is better able to sustain its debts in 2021 than in 2009 because the cost of servicing the debt is lower, thanks to the actions of the ECB.

It says the EU fiscal rules need to be overhauled and that if the cost of servicing higher levels of debt were taken into account, there would be more room for governments like Ireland to borrow more.

However, it cautions that any extra spending should be on capital investment. Also, a small open economy like Ireland's needs to have a sustainable way of funding itself.

Professor McQuinn said the pandemic has really exposed the duel edge nature of the economy. 

He said that jobs in sectors of the economy that have been hardest hit by the pandemic, such as retail and tourism, are not at the higher end of the wage spectrum and many employees are employed on temporary contracts. 

Although these sectors should have a significant bounce back in employment levels when restrictions ease, he said, it will unfortunately take some time. 

Today's report also highlights that the increase in savings in Ireland during the pandemic was the highest in the euro area.

The ESRI believes that some of this will come back into the economy once restrictions are lifted.

However, the elevated level of savings is not spread evenly among the population.

Younger households working in the worst affected sectors such as accommodation have seen the biggest negative impact on incomes.