Northern Ireland’s economy is expected to grow marginally more in 2010 than previously anticipated

Concerns remain about the likely strength and smoothness of local economic recovery, according to Northern Bank Chief Economist Angela McGowan.

The latest ‘Quarterly Sectoral Forecasts’ report published by Northern Bank, shows that the health of the local economy is set to improve in 2010 with the economy forecast to grow by 1.3 per cent by the end of the year,  up  0.1 percentage point from the December 2009 forecast.

The business services, retailing and manufacturing sectors, which represent over a third of total economic output locally, are expected to grow by 2.7 per cent, 2.3 per cent and 1.35 per cent respectively. 

Although the majority of private sectors are expected to recover, the financial sector is expected to suffer modest job losses during 2010 as cost cutting measures filter through the industry.  The utilities sector will also see a contraction with growth set to decrease by 4.1 per cent.

Ms McGowan said that whilst forecasts showed that local economy will produce stronger economic growth by the end of the year, the recovery will still be very fragile and will be characterised by lacklustre growth and a bumpy road ahead for both consumers and businesses. Ms McGowan explains:

 “The economy is set to grow in 2010 by about 1.3 per cent year on year, indicating a fragile and lacklustre recovery. Our latest forecasts suggest that the local economy should not slip back into recession in 2010 if policy makers manage the fine line between financial austerity and sustaining economic growth. The timing by the UK Government in terms of putting the brakes on supportive fiscal policy will be crucial.”

The report indicates that local manufacturing will continue to build on its recovery in quarter four of 2009, growing by 0.9 per cent in the first quarter of 2010 (quarter on quarter growth rate).  Although economic output will improve in this sector, employment in manufacturing is expected to contract in the long term due to reliance on the construction sector.

The business services sector, which includes a wide range of activities from accountancy to labour recruitment and call centres, is forecast to experience sluggish growth in the first quarter of the year but should experience a good rebound in the second half of 2010.

The retail sector is set for expansion from mid-2010 onwards, albeit at a modest rate.  As forecasted in Northern Bank’s last report, local retailers are reported to have experienced a bumper Christmas with sales up in some stores by 50 per cent.  However, unusually cold weather is expected to have affected output in the retail sector in the early part of this year. 

The report indicates that it’s unlikely that the local economy will fall back into recession but that challenges remain. Ms McGowan explained:  “While the most recent data suggests that the local economy should not slip back into recessionary territory this year, there are downside risks to growth coming from a number of areas.  Firstly, whilst consumer confidence has improved dramatically over the year, the impact of withdrawing the lower VAT rate may have adverse consequences for consumption.

"Secondly, the timing of any public sector cuts will also determine growth levels and forecasts show that this sector will contract by 0.65 per cent in 2010.  In addition mounting UK Government debt is also starting to cast a dark shadow over all regional economies.”
 
Ms McGowan said: “The labour market has so far shown some degree of resilience with companies shedding fewer workers than expected during the recession.  However, a weak recovery is likely to translate into further contraction in the labour market and this will continue into the middle of 2010.”

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Northern Bank’s sectoral analysis is published on a quarterly basis providing a continuous assessment of the performance of key sectors in the Northern Ireland economy. A copy of the full report is available at www.northernbank.co.uk/economy

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