Northern Ireland's economic growth is expected to grow strongly into next year following post-lockdown restrictions, according to a new report by EY.
The professional services firm projected that Northern Ireland GDP is to grow by 5.9% this year following a fall of 10.1% in 2020.
The recovery is expected to continue into 2022 with growth of 4.1% expected.
Professor Neil Gibson, Chief Economist for EY Ireland said, “A contraction of more than 10% in 2020 would normally be expected to be accompanied by similarly adverse labour market conditions but the scale of government support has, so far, prevented such an outcome.
"Though job losses are projected later in the year, the unemployment level is not expected to reach the double-digit levels that were feared.”
Differences in the speed of vaccine rollouts mean that the Northern Ireland recovery in consumer sectors may run ahead of the Republic of Ireland, but EY predicts that the two should be similar in pace and magnitude later in 2021.
EY estimates are that as much as an additional £3.8bn will be in Northern Ireland domestic accounts by summer 2021 than was previously expected to be the case.
Stock market and house prices have held up, boosting overall wealth levels and confidence to spend. Not all savings will flow back immediately, and if the labour market looks uncertain or expectations are for future lockdowns, then there may be a need for the government to encourage spending through policy measures.
Risk of high inflation
The report looks at the prospect of increasing prices and suggests that there is a very real risk of a period of strong inflation.
A period of high inflation would bring with it further challenges for those on lower incomes. If prices rise in staples such as food or fuel, this could disproportionately affect those who are on lower incomes who are already more likely to have been worse-off due to Covid-19.
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Prof Gibson added that "rising commodity prices, extra costs associated with health guidelines and Brexit allied to high levels of government and consumer spending would usually suggest the environment is ripe for prices to go up.
"The hope is that this does not trigger a damaging spiral in wages and future prices, but firms and policy makers should be alive to the risk," he continued.
"The level of Government support has been unprecedented, but entirely warranted given the risks the crisis presented. Tough decisions lie ahead, the government will need to ease off support as early as possible to avoid locking in additional costs and escalated debt levels but if support is retracted too early many firms or individuals may struggle to cope.”
NI Protocol 'hoped' to be resolved
Issues related to the implications of the Northern Ireland Protocol have yet to be resolved, and EY hope that a mutually satisfactory solution is reached at the earliest possible juncture.
Firms are exploring their supply chains to identify points of failure and associated levels of risk. There is a pushback against any one market becoming a dominant player and a drive towards multi-site and multi-nodal location strategies.
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This would present Northern Ireland with an opportunity to capitalise on its unique access to both the UK and EU markets when seeking to attract further investment, and the region is also well placed to benefit from increased investment in innovation.
Michael Hall, Managing Partner for EY in Northern Ireland commented: "The value of science and R&D has been made very clear over the last year and, looking ahead, Northern Ireland’s strengths in these areas will be critical to the region’s future.
"The recent establishment of the Independent Fiscal Council for Northern Ireland and the Fiscal Commission to explore tax varying powers, coupled with progress on City Deals and Freeports suggests a new era may fast be approaching where Northern Ireland is able to plot its own unique economic course.”
