- NI economy is forecast to contract at broadly the same pace as the UK
- A strong consumer bounce back is expected, the challenge is to ensure firms survive to be able to reap the benefits
- NI’s large public sector and significant policy actions have made the impact of COVID-19 much less severe than it otherwise would have been
- Forecasts assume tariff free post Brexit trade deal
Belfast, Monday, 16 November 2020: The Northern Ireland economy is forecast to contract at broadly the same pace as the UK in 2020 according to the latest edition of the EY Economic Eye report. NI GDP is projected to fall by 10.9% this year before recovering by 5.5% in 2021, compared to a fall of 10.1% and a rebound of 6.0% in 2021 in the UK. Despite the NI contraction being the largest annual fall on record, a strong labour market and large public sector provides a level of insulation which prevents a more severe contraction.
Commenting on the report, Professor Neil Gibson, Chief Economist for EY Ireland said, “The region is heavily dependent on consumer sectors and has a concentration of industrial sectors which have been strongly impacted by COVID-19, namely heavy machinery and transport equipment. However, NI’s favour for large public sector organisations, so often cited as a weakness, has provided stable and secure employment for many.”
The forecasts suggest that NI will continue to track UK economic growth rates, albeit lagging slightly due to its sectoral mix. In NI, 26.9% of the workforce was employed in retail, accommodation, arts and other services at the end of 2019 - sectors at the front line of the COVID-19 disruption. This is a stark reminder of the importance these jobs play in the island economy. Encouragingly, data from the late Summer period shows how much people miss these services, therefore a bounce back is likely, although the longer the disruption continues, the greater the risk that not all businesses will survive to enjoy the pick-up.
Neil said: “The labour market has shown remarkable resilience leading up to and throughout the pandemic. Unemployment spiked sharply at the beginning of the pandemic, but stabilised very quickly, remaining at a lower level than projected. This partly reflects the effectiveness of the furlough scheme but is also an endorsement of the flexibility and adaptability of NI businesses and workers, a commonly cited positive amongst investors to NI.”
Signs of underlying weakness as Brexit deadline looms
The most immediate concern for the NI economy is that the Composite Index, a proxy for overall growth, has been contracting since the start of 2020, before COVID-19 was a factor. This suggests a level of underlying weakness which is far from ideal as the deadline for the post-Brexit UK / EU trade deal fast approaches. The outcome of the final stages of the trade deal negotiations is critical for NI and its economic outlook. Despite the UK having already left the EU, much remains unclear regarding NI’s unique position, making it very hard for businesses to effectively prepare.
Signs of encouragement
Positive feedback has been reported by many NI firms regarding their ability to keep operating through such a disruptive time - particularly in the professional and administrative services sectors. Further encouragement can be found in the strength of the housing market, with search engine data showing an increased desire for home offices and garden space, which appears to be supporting demand.
There are also some areas of growth amidst the disruption. Jobs are being created for delivery drivers and in the digital sector, as firms pivot to new operating models. This will help to maintain incomes along with the government support to date, and thus consumer spending is forecast to hold up better than might be expected given close to double digit unemployment rates.
Michael Hall, Managing Partner for EY in Northern Ireland commented, “Digital technology is unlocking considerable productivity gains across a wide range of firms. There is a concern that in a region heavily dominated by very small firms, there may be a lack of resources to make this investment. However, in an increasingly broad range of sectors, technology is lowering the cost of entry, removing the cost associated with peripherality and driving competition. Brexit will require exporters to have better data systems in place and it is becoming clearer that digital progress for firms will be a requirement, not an option.”
According to the report, perhaps one of the most encouraging aspects of the longer-term outlook is NI’s strong performance on many quality-of-life or wellbeing metrics. These are increasingly being considered as a more effective way to measure true economic and social progress and the region is actively embracing them as their framework for the future.
Read the full report here: Economic Eye Report Winter 2020 - Bouncing back or stepping forward