Sluggish economic growth is set to continue in Northern Ireland but the outlook for the labour market is now a bit brighter, according to a new report by Danske Bank.
The Quarterly Sectoral Forecasts report, published today by Danske Bank, suggests that Northern Ireland’s economy could grow by 1.2 per cent this year and 1.0 per cent in 2018, unchanged from the previous forecasts.
Danske Bank said that nearly all sectors of the economy are expected to grow both this year and next year with the one exception being public administration and defence.
Conor Lambe, Danske Bank Economist, said: “There is clear evidence that high inflation, and the resulting fall in real wages, are holding back consumer spending growth and this has been a big factor in the sluggish economic growth we have experienced so far this year.
“With businesses wary of investing in a climate of Brexit-related uncertainty, as well as the UK Government continuing with its programme of fiscal austerity, growth is likely to remain subdued over the next couple of years.”
However, Danske Bank also said it has upgraded its employment growth forecast for 2017 on the back of recent labour market data releases.
Conor Lambe added: “Both the workforce and employee jobs data series published for the second quarter of this year showed an increase in the number of jobs in the economy. As such, we have revised our employment growth forecast for 2017 up from 0.1 per cent in our last report to 0.8 per cent.”
The report also suggests that interest rates could rise relatively soon. The previous expectation of rates remaining on hold until 2019 has been revised and Danske Bank now expect the first interest rate rise to occur before the end of the first quarter of 2018, with a rise in November 2017 a distinct possibility.
Conor Lambe said: “While interest rates are expected to increase at some stage within the next few months, it is important to note that rate rises will probably be very gradual and so the interest rate environment is likely to remain relatively accommodative for some time yet.”
The professional, scientific and technical services sector is expected to be the fastest growing in Northern Ireland this year (4.3 per cent), followed by the information and communication sector (4.2 per cent).
Projected growth in the wholesale & retail trade sector has been revised down marginally for 2017 (2.1 per cent) and is expected to slow in 2018 (1.6 per cent). With inflation forecast to average 2.7 per cent in 2017 and 2018, real wages are expected to continue falling in the months ahead. Linked to this, growth in other consumer-focused sectors, such as arts and accommodation, is also expected to slow next year.
A downward revision in manufacturing brings expected growth in the sector to 1.0 per cent in 2017 and 0.9 per cent in 2018. Despite the depreciation of sterling having a positive impact on some exporting businesses, companies that import a significant amount of raw materials are facing increased cost pressures from the weaker exchange rate.
Mr Lambe said: “We still expect that public administration & defence will be the only sector to exert a significant drag on GVA growth. We have slightly adjusted the expected fall in 2017 down to 3.6 per cent, followed by a further decline of 1.1 per cent in 2018. While the Government may decide to increase spending in the Autumn Budget, we believe that fiscal tightening will continue to squeeze growth in the coming years.”
Labour market outlook
Employment levels are expected to increase by 0.8 per cent in 2017 but to remain largely unchanged in 2018. The annual average unemployment rate in Northern Ireland is projected to be around 5.3 per cent in 2017 but to rise slightly to 5.4 per cent in 2018 due to flat employment growth and an increase in the labour force.
Information & communication and professional scientific & technical services are expected to continue to be key drivers of employment growth, experiencing expansions in 2017 of 2.7 per cent and 2.5 per cent respectively.
Despite an upgrade to the forecast for employment growth in administrative & support services to 2.3 per cent, it has been knocked out of the top three sectors by construction. The employment data for the first half of 2017 was strong for the sector, thus the forecast for employment growth in construction has been revised up to 2.5 per cent in 2017.
Risks and uncertainties
There are a number of risks and uncertainties which could impact upon the forecasts. These include continued political uncertainty in Northern Ireland and Brexit.
Mr Lambe added: “As the Stormont deadlock continues, political uncertainty remains at heightened levels in Northern Ireland. There are a number of consequences faced by the Northern Ireland economy due to the absence of devolved government. These include the lack of progress on important areas such as finalising and beginning to implement the Industrial Strategy and making decisions locally about how to spend the money allocated to Northern Ireland by the Conservative-DUP deal following the general election. There is also the risk that Northern Ireland is under-represented when it comes to engaging with the UK Government on Brexit and, without the devolved institutions in operation, local policymakers are somewhat restricted in their ability to help shape the future arrangements that will exist at the border with the Republic of Ireland.”