Today sees the release of December data from the Ulster Bank Northern Ireland PMI. The latest report – produced for Ulster Bank by Markit – signalled that the rate of growth in business activity at Northern Ireland companies quickened sharply at the end of 2016 and was the strongest in almost two-and-a-half years.
The rise in output reflected a second successive marked increase in new business, with new export orders expanding substantially again. Meanwhile, input costs continued to rise sharply and output prices increased to the greatest extent since August 2008.
Commenting on the latest survey findings, Richard Ramsey, Chief Economist Northern Ireland, Ulster Bank, said:
“2016 was a year of ups and downs for Northern Ireland’s private sector. Local businesses experienced four key phases, which broadly coincided with the four quarters. Following strong growth in Q1, the second three months of the year saw something of a slowdown in activity in the run-up to the June referendum. After the Brexit-vote, activity fell initially with the third quarter marking a period of stagnation. However, the final quarter of the year has witnessed a strong rebound with a robust recovery taking hold.
“Indeed, business activity accelerated to its fastest rate of growth in 29-months in December, with the pace of expansion back above the pre-downturn long-term average. The latest PMI report also reveals that firms increased their staffing levels at a faster rate than the previous month. Order books are their most buoyant since September 2014, with demand from export markets notably stronger than domestic orders. Export orders eased back from November’s record high but Q4 still represented the best quarterly figure since the survey began. Furthermore, taking the year as a whole, 2016 represented the strongest rate of export growth since 2004.
“Sterling weakness is a key factor in this, and has been a key theme in 2016, particularly following June’s referendum. This has been largely responsible for the three key developments during the year – relating to exports, retail, and inflation.
“The record rates of growth in export orders in H2 2016 has been accompanied by the strongest set of quarterly retail sales figures in the survey’s 14-year history. Demand from the Republic of Ireland is boosting exports and retail sales considerably. As a result, Northern Ireland’s retail sector continues to post the fastest rates of job creation of all the sectors. The downside of having a competitive exchange rate is import price inflation, and retailers and manufacturers have borne the brunt of input cost inflation. This is being passed onto consumers with retailers and manufacturers increasing prices in Q4 at their fastest rate on record.
“While Northern Ireland’s private sector ended 2016 on a high, this conceals contrasting performances at a sector level. Both retailers and manufacturers ended 2016 with much stronger sales and orders than they started the year. However, the converse was true for the services and construction industries. Indeed, construction firms were in contraction mode in three of the four quarters last year. Meanwhile Northern Ireland’s services sector continues to grow at a rather subdued rate, with 2016 well below the growth rates achieved between 2003 and 2007.
“The Northern Ireland economy begins 2017 with significant momentum, albeit the retail sector is largely driving this growth. However, inflationary pressures and benefit freezes will act as speed bumps for consumer spending and economic growth this year. The economy also faces stiff political challenges at home and abroad. It appears that politics rather than the economy will be the number one priority locally, nationally and indeed internationally for the foreseeable future. Against this backdrop, the Northern Ireland economy will do well to avoid stagnation in 2017.”
The main findings of the December survey were as follows:
The headline seasonally adjusted Business Activity Index rose to 58.7 in December from 54.5 in November, thereby signalling a sharp and accelerated increase in output. The latest expansion was the sharpest in almost two-and-a-half years. Total new orders rose for the second month running in December, and at a sharp pace. A number of respondents highlighted the impact of sales to clients in the Republic of Ireland, linked to sterling weakness. New export orders increased considerably and at a pace second only to the series record posted in November.
With new orders increasing, outstanding business was accumulated for the second successive month. The rate of job creation, meanwhile, quickened to a three-month high at the end of 2016. While sterling weakness helped firms to secure new orders, it also continued to impact on cost burdens in December. Input prices rose sharply again, albeit at a weaker pace than in November. A number of respondents passed on higher costs to clients, thereby resulting in a further rise in output prices. Moreover, the rate of charge inflation quickened to the fastest since August 2008.
