The local economy is now expected to grow by 0.8 per cent during 2010 and that the Northern Ireland economy has only a 20 per cent chance of falling back into recession, according to Northern Bank Chief Economist Angela McGowan.
The latest ‘Quarterly Sectoral Forecasts’ report published by Northern Bank shows that despite a degree of improvement in economic conditions with growth forecasts of 0.8 per cent for 2010 and 2.0 per cent for 2011, there is still considerable ground to cover before the economy’s economic output is back to pre-recession levels.
Ms McGowan said that whilst the latest forecast of a 0.8 per cent growth in 2010 is a downward revision from the 1.0 per cent previously forecast, in the longer term Northern Ireland has the potential for “sound economic growth”:
“While downward revisions to economic growth are of course disappointing, it is important to remember that the economy is still in recovery mode and the chances of falling back into recession are now just one in five. Northern Ireland has the potential for sound economic growth in the long-term through growing our private sector but without doubt growth in the short-run will be weak. It will of course mean that the necessary adjustment to a new equilibrium, in terms of public/private sector balance, will not be without some difficulties.”
Ms McGowan explained that although strict austerity measures to improve the UK public finances will have a long-term positive effect, the UK government’s economic strategy may reduce confidence and job losses in the short-term:
“The UK budget that was delivered in June was particularly hard on the Northern Ireland economy given that it targeted public spending and welfare benefits. The local economy, which is currently very dependent upon the public purse, will naturally find this adjustment to reduced state support particularly challenging”.
The report found that overall the Northern Ireland economy is expected to grow with some sectors such as manufacturing and agriculture performing better than others and some components of the economy, construction in particular, still requiring ‘intensive care’. Of the large sectors in Northern Ireland, positive growth will be experienced in Business Services (1.8 per cent), Manufacturing (0.8 per cent) and Retail & Distribution (2.1 per cent). Assuming the local government maintains front-line services the Health sector should grow at 2.9 per cent.
Ms McGowan noted:
“The sharp falls of late 2008 and early 2009 appear to be over for the manufacturing sector, and although building supplies and construction-related manufacturing remain muted, those sectors such as food production, electronics and pharmaceuticals continue to provide strength. Business services, with the exception of real estate, are holding up well and the prospects for this sector are vital to the overall regional outlook. The export potential for business services also remains strong and the sector could even benefit from an influx of labour from the ex-public sector pool.”
Northern Bank reports that the Retail & Distribution sector is set to grow at 2.1 per cent, which is consistent with the recovery seen in official UK data. However, Ms McGowan noted that challenges for the retail sector remain due to the hike in VAT (up to 20 per cent in 2011) and the fact that disposable household income is set to be squeezed with higher taxes and low growth in earnings.
While the majority of sectors will be in recovery mode, a number of sectors will continue to contract. For example, despite the 2012 Olympics lending support to the construction sector in Great Britain, local construction is expected to contract by a further 3.0 per cent this year and construction-related sectors such as Real Estate will also struggle. Fiscal austerity measures will also mean that the Public Administration sector will decline at a rate of approximately 1.5 per cent however, as there is no clarity yet on the scale of local cuts, this contraction could be much higher. In addition, the Financial Services sector will also marginally contract (-0.3 per cent) due to firms restructuring.
Northern Bank’s sectoral analysis is published on a quarterly basis providing a continuous assessment of the performance of key sectors in the Northern Ireland economy. A copy of the full report is available at www.northernbank.co.uk/economy
ENDS
Download the report here 
N.B 0.8% GVA Growth is the year on year four quarter average.
The report highlights that GVA growth rates reflect changes in economic activity rather than economic levels. The overall output level in the local economy is still 5 per cent below the pre-recession peak.
About Northern Bank’s ‘Quarterly Sectoral Forecasts’ report:
- The ‘Quarterly Sectoral Forecasts’ report is published by Northern Bank in association with Oxford Economics. The respected Oxford Economics UK macro model is linked to the wide suite of world models and is consistent with global trends in demand / commodity prices / exchange rates etc. The UK macro model feeds down into the UK industry model which disaggregates employment and output into broad sectors. This is then a parent to the UK regional model. The sub-regional models (LAD model), sits within this regional framework.
- The sectors analysed are: Agriculture & Fishing, Extraction, Manufacturing, Electricity, Gas & Water, Construction, Distribution & Retailing, Hotels & Catering, Transport & Communications, Financial Intermediation, Business Services, Public Administration & Defence, Education, Health & Social Work and Other Personal Services.
- ‘Business Services’ includes rental services, management and consultancy activities, accounting and legal services, market research, secretarial and translation activities.
- ‘Other Personal Services’ includes activities of religious and political organisations, museum activities, entertainment facilities, hair and beauty treatments and washing and dry cleaning services.
- Economic activity or output is measured by Gross Value Added (GVA)
- A copy of the report is available here