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Northern Ireland Economic Growth Likely To Remain Subdued

Andrew Kelly Corporate

The pace of economic growth in Northern Ireland picked up in the second quarter of 2018 but the performance of the economy is likely to remain subdued due to Brexit-related uncertainty and above-target inflation, according to a new report from Danske Bank.

In the Bank’s latest Northern Ireland Quarterly Sectoral Forecasts report, Danske Bank projects that the Northern Ireland economy will grow by 1.0 per cent in 2018 and 1.1 per cent in 2019.

Jobs growth remained positive in the second quarter of the year and looking ahead, Danske Bank expects the total number of employee jobs to increase by 1.8 per cent in 2018. However, the Bank thinks this will slow to 0.5 per cent in 2019.

Conor Lambe, Danske Bank Chief Economist, said: “The second quarter of 2018 saw an anticipated pick-up in economic growth, as the temporary factors which dragged on the economy in the first quarter came to an end. However, with above-target inflation continuing to exert pressure on consumers’ purchasing power, and Brexit-related uncertainty weighing on business investment, we expect overall growth in 2018 to remain relatively subdued at 1.0 per cent, with only a marginal increase to 1.1 per cent next year.”

Sectoral outlook

The business services sectors are forecast to continue to underpin economic growth over the next two years, with strong performances forecast for the administration & support sector (3.5 per cent in 2018 and 3.2 per cent in 2019), information & communication sector (3.3 per cent in 2018 and 2.9 per cent in 2019) and professional services sector (2.9 per cent in 2018 and 2.8 per cent in 2019).

Growth in the construction sector in Northern Ireland is forecast to be 1.0 per cent in both 2018 and 2019. Adverse weather conditions contributed to poor growth figures for the first quarter of the year. But looking at the output data for Great Britain, construction seems to have picked up pace again and Danske Banks expects a similar trend to have occurred in Northern Ireland.

Growth in the manufacturing sector is forecast at 0.7 per cent in 2018 and 1.4 per cent in 2019. Data from the latest Index of Production pointed to a strong second quarter for the sector in Northern Ireland, with output increasing by 1.3 per cent over the quarter.

Public administration & defence continues to have the weakest outlook of the sectors of the Northern Ireland economy. Output is expected to contract by 1.2 per cent in 2018 and by a further 0.9 per cent in 2019.

Labour market outlook

Despite the subdued economic growth environment, the labour market in Northern Ireland continues to surprise on the upside, with data from the Quarterly Employment Survey pointing to a strong first half of the year. Therefore, Danske Bank has revised its forecast for employee jobs growth upwards to 1.8 per cent in 2018 and 0.5 per cent in 2019.

The production industries are forecast to lead the way in terms of employment growth in 2018, with the number of jobs in the water supply sector expected to increase by 6.4 per cent and the number of manufacturing jobs set to rise by 3.7 per cent.

The Bank has revised its forecast for employment growth in the wholesale & retail trade sector upwards on the back of strong quarterly employment data for the first half of the year. In addition, the most recent Index of Services data pointed towards a growing retail sector, with output in the combined retail trade & accommodation and food sector increasing over the quarter and over the year. Danske Bank expects jobs growth of 1.3 per cent in 2018 and 0.5 per cent in 2019 in the retail sector.

The unemployment rate in Northern Ireland was 4.0 per cent in the May-July 2018 period, continuing on its upward trend following a ten-year low observed in the first quarter of 2018. The increase in the unemployment rate may be due to people that were previously inactive deciding to enter the workforce, perhaps encouraged by the recent data showing UK-wide wage growth. Danske Bank is forecasting that the unemployment rate in Northern Ireland will average 3.9 per cent throughout 2018 and 4.2 per cent in 2019.

Risks and uncertainties

Brexit, political uncertainty and tighter fiscal policy are still the biggest risks facing the economy.

Mr Lambe added: “It is now just under six months until Brexit formally takes place. However, the UK and EU have still not reached a Withdrawal Agreement that would see the UK leave the European Union in a managed and orderly way.

“We continue to believe that the UK and EU will eventually reach an agreement. However, at this stage it is unfortunately not yet possible to rule out a ‘no deal’ Brexit taking place in March 2019. A ‘no deal’ Brexit would undoubtedly lead to negative economic consequences for both Northern Ireland and the wider UK and, as such, it is the most significant risk facing the economy at this time.”

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