A new PwC report has suggested that there will be subdued economic growth in Northern Ireland in 2020, with the country's productivity “lagging” behind the rest of the UK.
The latest ‘UK Economic Output 2019’ (UKEO) review called for “greater investment in skills and connectivity" to combat this.
Productivity in Northern Ireland has been falling behind the rest of the UK for several decades. Numbers from the Office of National Statistics (ONS) show that although the region has had record levels of employment (72.3% in November), in the second quarter of 2019 labour productivity fell by 0.5% compared with the same in the previous year. It followed two consecutive periods of zero growth and there was no growth in output per job during the same period.
PwC's report shows that Northern Ireland is expected to deliver a below-average performance in the new year with growth estimated at 0.8%, down from 1.0% in 2019. This is based on the assumption of an orderly exit from the EU. The UK average is projected to see a similar fall from 1.2% to 1.0%.
However, another recent report from PwC showed that although its performance is still ranked quite low, Belfast was named the fourth largest improved UK city since the financial crash in 2008.
PwC noted that consumer spending has continued to drive the economy so far, but the housing market has cooled and business investment remains on a declining trend.
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The UKEO 2019 compared the UK’s productivity levels with other European and G7 countries to identify solutions. The report additionally considered regional differences. It was stated that UK GDP could be boosted by 4% (£83bn) - if local areas with below-average productivity levels could make up even half of the gap.
London’s productivity levels are the highest across the UK, at 40% higher than the national average, with the South East being the only other region with above average productivity. The lowest is Yorkshire and the Humber where it is 16% below, with Northern Ireland’s productivity 12.7% adrift. Internationally, UK output per worker is around 10-15% behind Germany, France and Sweden and more than 30% behind the US.
The UKEO 19 advised businesses to promote workplace training and upskilling, a recommendation that is reinforced by PwC’s recent global skills survey. It revealed that workers in Northern Ireland were the most open to retraining and upskilling, and two out of three said their employers were providing opportunities to improve their digital skills. In addition, PwC said that investment in local infrastructure could boost connectivity (and therefore productivity).
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PwC NI’s chair and Head of UK Regions, Paul Terrington commented that “a 1% increase in skills is associated with a 2% increase in productivity in a local area. Physical connectivity also matters, which reinforces the case for increased investment in transport infrastructure for areas that tend to lag behind. Similarly, investment in high-speed broadband would deliver significant benefits, particularly for rural areas, by offering businesses and the workforce far greater connectivity and flexibility.”
The report continues to suggest that the business, finance, hospitality and distribution sectors can expect relatively modest growth in 2019-20, yet again this remains dependent on how the delivery of Brexit goes.
The manufacturing and construction sectors have experienced considerable instability in recent years and are unlikely to see sustained recovery until there is clarity on both Brexit and the global trade outlook.
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John Hawksworth, chief economist at PwC said that stronger trends in government spending should counterbalance potential weaknesses in private sector spending. He added: “Both major political parties have shifted away from austerity, which is likely to support growth in 2020, irrespective of the outcome of the forthcoming general election. But this will also leave a bigger budget deficit to deal with in the longer term.”
PwC’s key projections for the UK economy are summarised below:
|
2019 |
2020 |
|
|
Real GDP growth |
1.2 |
1.0 |
|
Consumer spending growth |
1.2 |
1.4 |
|
Fixed investment growth |
-0.3 |
-0.5 |
|
Inflation (CPI) |
1.9 |
1.6 |
Source: PwC main scenario projections assuming an orderly Brexit
