2018 is set to be a year of modest economic growth as consumers still face some pressure on their purchasing power and Brexit uncertainty continues to weigh on business investment, according to a new report by Danske Bank.
The Northern Ireland Quarterly Sectoral Forecasts report, published today by Danske Bank, estimates that the Northern Ireland economy will grow by 1.0 per cent in 2018 and is expected to grow by 1.2 per cent in 2019.
Danske Bank said that nearly all sectors of the economy are expected to grow this year and next, with the one exception being public administration and defence.
Conor Lambe, Danske Bank Chief Economist, said: “The Northern Ireland economy is forecast to grow by 1.0 per cent in 2018, lower than the 1.6 per cent expected for the UK economy.
“After rising last year, we think that inflation has now passed its peak and expect it to slow through 2018 and 2019. However, given that the decline in inflation is likely to occur only gradually, consumers will still face some pressure over the next two years. Local consumer spending growth is projected to pick up slightly, but the expected 0.7 per cent increase in 2018 is still relatively modest.
“Brexit-related uncertainty is likely to continue to weigh on business investment as companies still face uncertainty around their future, long-term access to EU markets. But, on a more positive note, the global economy is performing strongly and this should provide some support to exporting businesses this year.”
The administration & support sector is expected to be the fastest growing in Northern Ireland in 2018 (3.5 per cent), followed by the information & communication sector (3.4 per cent) and the professional, scientific & technical services sector (2.6 per cent).
Danske Bank is projecting growth of 1.3 per cent in the wholesale & retail trade sector this year and 1.1 per cent in 2019. While some easing of the squeeze on household spending is expected, this consumer-focused sector is forecast to stay under strain from the remaining pressure on consumers and the sharp fall in consumer confidence seen at the end of 2017.
The manufacturing sector is forecast to grow by 1.0 per cent in 2018 and 1.2 per cent in 2019. And construction output is projected to increase this year and next year by 0.7 per cent and 1.1 per cent respectively.
Public administration & defence is the only sector Danske Bank expects to act as a drag on growth. The sector is forecast to contract by 1.2 per cent in 2018 and a further 0.6 per cent in 2019. It has been suggested that fiscal austerity measures may be loosened slightly in the autumn Budget, but Danske Bank believes that they will continue to drag on GVA growth over the next few years.
Labour market outlook
Northern Ireland is unlikely to maintain its pace of growth from 2017 when employment, measured by the number of employee jobs, grew by 1.6 per cent. The number of employee jobs is expected to increase by 0.4 per cent in 2018 and 0.2 per cent in 2019.
The information & communication sector is expected to have the fastest employment growth in 2018 of 2.1 per cent, closely followed by construction and administrative & support services, each forecast to grow by 2 per cent in 2018.
The number of manufacturing jobs is expected to increase by 0.7 per cent in 2018, and 0.4 per cent in 2019. The sector, which has the third largest number of employee jobs, showed stable growth throughout 2017 with quarter-on-quarter growth throughout the year.
Wholesale & retail trade, the sector with the largest number of employee jobs, is expected to experience a decline in employment in 2018 with the number of jobs forecast to fall by 0.3 per cent, and by a further 0.3 per cent in 2019. Growth in consumer spending in Northern Ireland is expected to be modest in both 2018 and 2019, acting as a drag on employment in this sector.
Risks and uncertainties
A number of risks and uncertainties could affect the forecasts, including continued political uncertainty in Northern Ireland, Brexit and fiscal tightening.
Mr Lambe added: “Stormont’s political stalemate is continuing into a second year, with seemingly no current prospects of restoring the devolved institutions. The lack of political representation has led to the postponement of big issues such as healthcare reform, and the length of the impasse has caused frustration within the Northern Ireland business community.
“The Brexit negotiations are continuing following the sign-off by the EU’s political leaders of a 21-month transition period from when Brexit formally occurs in March 2019. Given the December deal and the agreement on a transition period, the chances of a no deal outcome are now less than they were just a few months ago, although there are still a number of issues to be negotiated.
“At present, the most pressing issue is the Northern Ireland border, including how the ‘backstop’ arrangement will be written into the agreement. The latest version of the draft withdrawal agreement shows that this is still an area of disagreement.”