Danske Bank has slightly revised up its forecast for economic growth in Northern Ireland in 2025 but says the rate of economic expansion is likely to remain modest next year.
In its latest Northern Ireland Quarterly Sectoral Forecasts report, the bank said it expects the local economy to grow by around 1.0% this year, a marginal increase from its previous forecast of 0.9%.
The bank then expects the rate of growth to pick up slightly to about 1.1% in 2026, but this is below the 1.4% it projected in its previous report in March.
Conor Lambe, Chief Economist at Danske Bank said: “Global uncertainty levels have been particularly elevated during the first half of 2025 and this has likely been a contributor to the mixed performance of the economy.
“Looking forward, global uncertainty levels are expected to continue to weigh on economic activity, the Autumn 2024 Budget announcements have now taken effect and are putting pressure on business’ costs and inflation is running above target. The combination of these factors means that economic growth is projected to remain modest in 2025 and 2026. However, the expected continued easing of monetary policy is likely to give some support to consumer spending and business investment.”
SECTOR OUTLOOK
Danske Bank expects the business services sectors in Northern Ireland to experience the fastest rates of GVA growth this year and next.
The information & communication sector is projected to experience growth of about 1.9% and 1.8% respectively this year and next, closely followed by the professional, scientific & technical services sector, with 1.8% growth this year and 1.7% growth in 2026. Output in the administrative and support services sector is forecast to grow by around 1.5% this year, with growth then projected to accelerate to about 1.8% in 2026.
The consumer-focused sectors of the economy are expected to grow in 2025 and 2026, supported by the projected continued loosening of monetary policy and a gradual decline in the rate of inflation. Consumer confidence held steady in the first quarter of the year, although the lingering impacts of previous prices rises continued to have a negative impact on sentiment.
Danske Bank is forecasting that output in the wholesale & retail trade sector will expand by around 1.3% this year and next. Growth in the accommodation & food service sector is projected to be slightly slower, at around 1.1% in 2025 followed by 1.2% in 2026.
The manufacturing sector continues to face a number of challenges including global uncertainty, skills shortages and input cost pressures, leading to a forecast of just 0.4% growth in 2025 and around 1.0% in 2026. Public administration & defence is forecast to experience 0.7% output growth this year with the rate of expansion then forecast to slow to about 0.5% next year.
LABOUR MARKET OUTLOOK
After a strong start to the year, Danske Bank is now projecting that the growth rate of the annual average number of employee jobs will be around 1.4% in 2025 but the bank does not expect this pace of annual growth to be maintained, with jobs growth forecast to slow to about 0.4% next year.
The bank is also forecasting that the unemployment rate in Northern Ireland will average around 1.9% this year, before rising to an annual average of about 2.2% in 2026.
Employee jobs growth in the construction sector is expected to outpace the average for the overall economy this year at around 2.9% and remain one of the leading sectors in terms of employment growth in 2026 with a projected 1.1% expansion.
The professional, scientific & technical services sector is forecast to experience jobs growth of around 1.6% this year with the administrative & support services sector expected to follow closely with jobs growth of about 1.5% in 2025.
The wholesale & retail trade sector is projected to experience an increase in the annual number of jobs of about 2.5% this year while employment in the accommodation & food service sector is expected to rise by around 0.8% but the arts, entertainment & recreation sector is expected to experience weaker jobs growth of around 0.4%.
RISKS AND UNCERTAINTIES
Danske Bank said there are several risks and uncertainties around its projections.
Conor Lambe added: “The global trade policy environment remains highly uncertain while geopolitical risks and foreign policy uncertainty have also increased. There are a number of potential risks to the global economy stemming from elevated geopolitical tensions, including the war in Ukraine and developments in the Middle East.
“UK inflation has remained above its 2% target in recent months and was 3.4% in May. We expect inflation to remain above target and average around 3.2% in 2025, but there are risks around price pressures in the economy.
“Tight public finances and the limited headroom against the fiscal rules also means that the outlook for UK fiscal policy is uncertain. Should the 2025 Autumn Budget contain more tax rises or spending reductions, the performance of the economy could be adversely affected.”
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