Economic growth forecasts have been revised down significantly for Northern Ireland due to Brexit-related uncertainty, lower investment levels and higher inflation in the medium term, according to new economic forecasts from Danske Bank.
While a significant slowdown in the local economy is expected, there is a chance that Northern Ireland could avoid outright recession, the bank said.
The Quarterly Sectoral Forecast report, published today by Danske Bank, suggests that Northern Ireland’s economy will grow by 1 per cent this year and 0.5 per cent in 2017. This has been revised down from the previous report, in which growth of 1.6 per cent had been expected for this year and 1.9 per cent in 2017.
Danske Bank Chief Economist, Angela McGowan said: “We stress that uncertainty surrounding our forecasts is higher than usual as the Brexit withdrawal negotiations are only set to begin early next year.
“There is no doubt that the current lack of clarity around future trade relations, access to skills, the border and future funding streams will all negatively impact upon investment and recruitment in the year ahead. However, we must balance that uncertainty with the fact that policy levers will be used to offset some of this damage and the weak pound should lift exports. The forthcoming Autumn Statement should be one of the most interesting for years.”
Overall Performance of NI Economy
The report notes that the local economy is coming at the Brexit challenge from a reasonably good place in that unemployment is low, inflation is low and employment levels are relatively high. There is no issue around liquidity with this latest economic shock. The initial impact of the decision to leave the EU was, as predicted, a dramatic fall in sterling.
Ms McGowan said: “A depreciation is of course a double-edged sword, which provides support for exporters on one hand, but raises input costs for producers. The Office of National Statistics reports that producer input costs have risen by 7.6 per cent year on year in August. Higher inflation also dents consumer purchasing power. Nonetheless, we expect the Bank of England to look through any Brexit-related inflationary pressures and keep interest rates on the floor to support the economy.
“The initial shock of the referendum result appears to have now faded and given way to a more stable picture - albeit a temporary one. The withdrawal from the EU has not yet happened and Brexit uncertainty could hit sentiment, growth and financial markets again when Article 50 is finally triggered.
“For many NI firms it makes sense to carry on in a ‘business as usual’ mode as access to markets has not yet changed. In addition, domestic consumption appears to be holding up well. There is little doubt from business surveys that investment intentions have lowered. Some expansion plans are on hold and recent business polls have suggested that recruitment has also slowed.”
Best performing sectors
High growth sectors in this post-referendum period include sectors such as: ICT (3.6 per cent), Wholesale and Retail (2.8 per cent), Arts and Recreation (2.8 per cent), Private Administration (2.8 per cent), Professional and Scientific (2.5 per cent) and Hospitality (2.4 per cent). Together the high growth sectors account for around 39 per cent of local economic activity and they employ around 453, 000 people.
Moderate growth sectors
These include sectors such as Financial and Insurance (2 per cent) and Utilities (1.6 per cent). Together these moderate growth sectors account for 6.5 per cent of the economy and employ around 28,000 people in Northern Ireland.
Low growth sectors
Quite a few strategically important sectors in Northern Ireland are forecast to grow at a below average pace this year and next. Some of these include Agriculture (0.8 per cent), Real Estate (0.8 per cent), Manufacturing (0.4 per cent), Construction (-1.1 per cent) and Public Administration & Defence (-2.4 per cent). Many of these sectors are particularly large and together they account for around 53 per cent of the local economy in terms of GVA. They are also large employers responsible for around 364,000 workers during 2016.
Ms McGowan said: “It is clear that as the UK enters its Brexit negotiations there is a lot at stake for the regional economy. For a number of sectors across Northern Ireland, access to the Single market and access to skills will be paramount. Local worries also include cross border trade, collaborative university research funding and the impact on other EU funding streams on areas such as infrastructure and Peace and Reconciliation. A deal that keeps Northern Ireland as close to the EU as possible in terms of trade will ultimately be the best outcome and if achieved could help to nudge the current forecasts upwards.”