EY Economic Eye: Northern Ireland growth forecast revised upwards but labour market set to slow as Brexit fatigue bites
- NI economic growth for 2019 is forecast at 1.1% and will grow modestly to 1.2% and 1.6% in 2020 and 2021 respectively, assuming a smooth Brexit
- The NI labour market continues to perform remarkably well but with unemployment close to historic lows, finding and retaining staff is the number one business risk
- Brexit fatigue should not distract from the difficulties that the UK’s exit from the EU presents but there are opportunities being seized against the challenging backdrop
Belfast, Tuesday 18 June 2019: EY has raised its projection of Northern Ireland’s growth forecast for 2019 from 0.9% to 1.1% with growth picking up modestly in subsequent years to 1.2% and then 1.6%. The latest EY Economic Eye report published today, which outlines the latest projections for the all-island economy, projects GDP growth in the Republic of Ireland of 4.1%, moderating to 3.3% in 2020.
Northern Ireland’s labour market, which has expanded in each of the last six years, is projected to slow in 2019 and contract slightly the following year, before returning to moderate gains in 2021. Weak growth coupled with a very tight labour market, rising business costs and challenging high street conditions are the main factors in the projected slowing of the labour market. The Republic of Ireland is projected to continue creating jobs at a healthy rate with almost 212,000 net jobs predicted over the next five years. Across the island, the performance of the labour market is fuelling growth in consumer spending, however Northern Ireland’s vulnerability to a consumer slowdown is much greater than in the Republic of Ireland, and as a result sudden loss in confidence would be likely to push the NI towards recession.
Commenting on the report, Professor Neil Gibson, Chief Economist for EY Ireland said: “Whilst our forecast projects a slowdown in the rate of job creation in the Northern Ireland labour market, it’s important to note that this trend has also been expected in previous Economic Eye reports and has not materialised, as the region has continued to outperform expectations. Despite disappointing growth levels, firms continue to hire placing a premium on talent.”
The sectors set to experience the most significant employment growth between 2018-2023 are ICT (5,400), Professional Services (3,400), Accommodation and Food (2,900) and Construction (2,900), while the sectors set to experience losses include the Wholesale and Retail (-3,200), Agriculture (-1,800) and Public Administration (-1,600).
Economists concerned while business leaders decidedly cheerier
EY Economic Eye for the first time includes data from the firm’s Global Capital Confidence Barometer which assesses corporate confidence in the economic outlook based on insights from more than 2,900 executives in 47 countries. This analysis finds that 93% of business leaders view the global outlook as improving – highlighting a striking divergence with economists who are generally more cautious and concerned about headwinds.
Neil says, “Across the world, economic forecasts are being revised downwards due to the risks associated with global trade wars, Brexit and the disruption of key sectors such as the automotive industry. This concern is in contrast to business leaders who are generally more optimistic. The fact that economists and business leaders view the outlook differently is not surprising, and it reflects the strong demand in the economy at present with the impact of trade wars and the UK’s departure from the UK yet to be fully felt. Encouragingly, with half a million more people employed across the island than there were six years ago, there is considerable strength in the domestic economy that will provide a level of insulation against any global slowdown.”
The island builds up Brexit resilience
Whilst businesses are still implementing a range of mitigation strategies, the palpable sense of fatigue with the lack of clarity around Brexit remains. The Republic of Ireland remains a highly attractive relocation destination for companies moving outside of the UK, as demonstrated by EY’s latest European Attractiveness Survey which showed an impressive 52% growth in foreign direct investment into Ireland in 2018, with inflows from the UK serving as a major contributor to this growth. The same report showed that Northern Ireland was the only part of the UK to record an increase in FDI projects, as all other UK regions suffered a contraction. This growth was largely driven by increased numbers of projects from the US and the Republic of Ireland, and it emphasizes that the talent cost proposition in the region remains compelling despite the prevailing Brexit uncertainty.
Michael Hall, Head of Markets for EY Ireland commented, “The strength of the Irish economy suggests that even a hard Brexit may not push the country into recession, though it would clearly be very difficult for particular sectors and regions. The same cannot be said in NI where the underlying economic performance is much weaker. However, the impressive FDI figures into the island, highlight the opportunities that exist amongst the very obvious risks. Coupled with the fact that most people across the island who want a job have one, this provides a strong platform from which to face the challenges that lie ahead.”
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