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Subdued Growth Expected For The Northern Ireland Economy In 2019

Andrew Kelly Corporate

Danske Bank has today forecast that the Northern Ireland economy will grow by 1.0 per cent in 2019 and by 1.3 per cent in 2020, a slight downward revision from the Bank’s previous forecast of 1.2 per cent for this year.

In the latest Northern Ireland Quarterly Sectoral Forecasts report, published today, Danske Bank said that the services sectors are likely to continue to underpin growth, with administrative & support services, information & communication and professional services expected to be the three fastest growing sectors over the next two years.

Danske Bank Chief Economist Conor Lambe said: “Inflation is marginally below the Bank of England’s 2 per cent target, and with wage growth coming through at stronger rates, household spending power is expected to continue its recovery in 2019. However, Brexit-related uncertainty looks set to constrain business investment and weaker global growth is expected to lead to some challenges for exporting businesses.”

Sector outlook

Danske Bank is forecasting output growth in the wholesale & retail trade sector of 1.1 per cent in 2019 and 1.5 per cent in 2020.

The manufacturing sector is expected to grow by a modest 0.9 per cent in 2019. The latest Index of Production for 2018 Q4 reported a 0.5 per cent contraction in manufacturing output over the quarter, although stronger growth earlier in the year meant output was up by 2.4 per cent when compared with 2017 Q4. Growth is forecast to pick up to 1.3 per cent in 2020, based on the assumption that a Brexit deal is eventually agreed.

Danske Bank said it expects growth in the construction sector to reach 1.2 per cent in 2019 and 1.5 per cent in 2020. High levels of political uncertainty are expected to continue to dampen capital spending by businesses and this is likely to constrain growth in the construction sector.

Public administration & defence continues to have the weakest outlook of all the sectors of the Northern Ireland economy. Output is expected to contract by 1.0 per cent in 2019, and by a further 0.8 per cent in 2020.

Labour market outlook

The latest jobs data continued to show growth in employment in Northern Ireland. The last Quarterly Employment Survey (QES) showed that in 2018 Q4, the number of employee jobs rose by 0.7 per cent over the quarter and by 1.9 per cent compared with the same quarter in 2017.

Overall, Danske Bank estimates that employment growth in Northern Ireland will slow to 0.5 per cent in 2019 and to 0.3 per cent in 2020 as economic growth remains subdued, spare capacity in the labour market erodes further and firms begin to shift their focus away from recruiting workers and towards improving productivity.

The Bank is forecasting that the professional, scientific & technical and administrative & support services sectors will experience the fastest employment growth in 2019, at 1.2 per cent and 1.0 per cent respectively. Both sectors are expected to see a slight slowdown in the pace of job creation in 2020, but should continue to experience faster rates of job growth than the other sectors of the Northern Ireland economy.

The increase in the number of manufacturing jobs is expected to be much lower than that achieved in 2018. The Bank expects the number of jobs to rise by 0.6 per cent in 2019 and 0.4 per cent in 2020, just slightly above the Northern Ireland average.

Danske Bank expects the annual average unemployment rate to remain unchanged from last year at 3.6 per cent in 2019, but to rise slightly to 3.8 per cent in 2020.

Risks and uncertainties

Once again, Brexit and political uncertainty remain the two biggest risks to economic growth in Northern Ireland.

Conor Lambe said: “Given that Parliament does not support a no-deal Brexit, the UK leaving the European Union without a deal is an unlikely outcome. However, it is still a possibility and if it were to occur, it would have severe consequences for both the UK and Northern Ireland economies.

“We continue to believe that the UK will eventually leave the EU with a deal but a number of outcomes are still possible over the months ahead, including a further extension of the Article 50 process, a second referendum or a general election. With high levels of uncertainty continuing to linger, Brexit remains a drag on economic growth and it poses a significant risk to Northern Ireland’s future economic prospects.”

He added: “Northern Ireland remains without a Stormont Executive, following the collapse of the power-sharing administration back in January 2017. Businesses and consumers are continuing to express concerns about the lack of political stability in Northern Ireland, with investment decisions and confidence both being negatively affected by the uncertainty.”

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