The Governor of the Central Bank says the economy should pick up in the second half of the year, but that is "very, very contingent" on the rollout of COVID-19 vaccines and spread of the virus.

However, Gabriel Makhlouf is also warning that historically low interest rates won't last forever.

The financial regulator is currently estimating that domestic economic demand will increase by 2.9% this year, following an estimated decline of around 7.1% last year.

Mr Makhlouf told The Pat Kenny Show the economy is in a better place than it was when the pandemic began.

He said: "We’ve seen manufacturing exports - especially pharmaceutical and medical supplies - do very well. The counterbalance of that is travel tourism and hospitality is suffering the biggest impact.

“As we look forward, we’ve got the added benefit - although it’s still not as good as it could of been - that there’s been a Brexit trade deal.

"As we look forward, and it’s still very uncertain… the fact that the vaccines are coming… we see the picture in the near-term not being very good, but in the second half of the year picking up. But it is very, very contingent on the vaccine rollout and the path of the virus."

To support the various COVID-19 supports, the Government has been borrowing large amounts, taking advantage of favourable borrowing rates.

In terms of interest rates, Mr Makhlouf said they remain 'remarkably low' by historical standards - which is beneficial for governments, businesses and households.

However, he said it's to wrong to "assume that interest rates will stay at these very low levels forever - that’s unlikely".

Nonetheless, he said the Government shouldn't be looking at returning its medium-term debt to sustainable levels "very quickly" - saying it's important to see the country through the current crisis first.

However, it's something that they do need to start thinking about.

He said banks “still have the legacy of the last crisis to work through”, which is one of the reasons why interest rates for house buyers are higher here than other countries.

He said those rates have been coming down, and "will reduce further" over time.

The Central Bank Governor said the fundamental issue around house prices is supply, and therefore more houses need to be built and sold at affordable prices.

Insurance

Mr Makhlouf also said he wants to see cases involving the payment of business interruption cover by insurers settled as soon as possible.

The Restaurants Association wrote to 12 insurers last week seeking pay-outs to hundreds of business owners in the sector and set a deadline of today.

One of them has now started making payments as the RAI threatens legal action for those who don't.

It comes after a court ruled last week that four pub owners should be compensated by their insurer for financial losses incurred as a result of the pandemic.

On the topic of insurance, the Central Bank governor said: “From last March, we’ve been working on this - we identified around 250 different policy wordings involving around 30 firms. We identified around 50 of those 250 wordings… the firms were not applying the policy correctly in our view.

"Around half of the business interruption policies that we are aware of actually don’t have cover for COVID-19 at all… the other half fall into roughly two categories. One category is where cover is only available if COVID-19 happens on the premises of the business… and the other half are slightly different ones where it’s really about the radius to the premises.

“We have arrived at a position… in establishing which policies should be paying, and a number of insurance companies have already gone and done that. Of course there have been some that disagreed with our view and gone to the court."

He said last week's case before the courts involving FDB Insurance was a test case, and the court has now made their decision.

He said: "I now want to see those cases settled as soon as possible - people need to make claims, and claims need to be assessed in the normal way.”

However, he noted that some aspects of the court case still need to be decided.