Commenting on today’s economic data, Richard Ramsey, Ulster Bank's Chief Economist in Northern Ireland, has released the following statement.
The Northern Ireland economy continued to expand in Q1 2017, according to today’s data, albeit at a weaker rate than in the previous quarter. Private sector growth was driven by the services sector (+0.5% q/q) with industrial production (-0.2% q/q) and construction (-1.7% q/q) posting contractions. The fall in industrial production though conceals strong rates of growth within manufacturing firms (+0.9% q/q).
Despite the ongoing expansion in the economy, it should be noted that Northern Ireland’s recovery remains a work in progress. In just over four years, the local private sector has recovered two-thirds of the output it lost during the downturn. Output in Q1 2017 was still almost 4% below the corresponding level a decade ago and is back at where it was prior to the 2006/07 ‘bubble’ (i.e. late-2005). However, the private sector recovery in employment (in numerical terms) has been more impressive than output. There are 10% more private sector jobs in Q1 2017 than there were a decade ago. Significantly, however, despite these additional workers, Northern Ireland’s private sector is still producing less than a decade ago. This underscores the severe productivity challenge the local economy faces.
Meanwhile the public sector has been retrenching in the face of public spending cuts with a 10% reduction in staffing levels. Looking ahead, while the vast majority of job losses in the public sector are already behind us, the sector is not expected to be a source of employment growth in the years ahead. Fiscal austerity is set to continue for the foreseeable future.
It should be remembered that today’s data releases relate to Q1, and we are already approaching the end of the first month of Q3. A range of indicators, notably the Ulster Bank PMI, suggest that private sector growth has continued into more recent months. In relation to construction output, the fall in Q1 was driven by a significant fall in infrastructure investment. According to the RICS and Tughans construction survey, this soft first quarter trend has continued into Q2. The Ulster Bank PMI has also confirmed this with new orders falling. Clearly, the £1.5bn Westminster package will provide a much-needed fiscal boost for the construction industry and the economy as a whole. However, it is vital that this investment ‘on paper’ gets to the ground as soon as possible.
As we enter the second half of 2017, economic conditions are turning more hostile for growth. The UK economy has been slowing and the renewed cost of living squeeze will mean that consumer spending will not drive growth in the way that it did in 2015 and 2016. Add ongoing uncertainty associated with Brexit and public finance pressures into the mix, and it is clear that we have entered choppier economic waters when growth will be harder to achieve.
