EY Economic Eye: Northern Ireland forecast revised downwards marginally, as labour market set to contract
- NI growth forecast for 2020 revised slightly downwards to 1.1% from 1.2%
- Growth is projected to pick up in 2021 to 1.6%, assuming the avoidance of a hard Brexit
- A no-deal Brexit outcome could see 2020 growth dip to -0.6%, placing NI into recession
- NI employment forecast to contract in late 2019 into early 2020, as slow growth and high profile job losses filter through
Dublin, Tuesday, 10 September 2019: EY has slightly revised downwards its economic forecast for Northern Ireland in 2020, from 1.2% to 1.1%, having enjoyed steady growth despite there being no Executive in place. Growth in 2019 is projected at 1.0%, down marginally from the 1.1% projected in June. This moderate downward revision, based on the assumption of an orderly Brexit, is contrary to the continued strength of the labour market which remains in stark contrast to the downbeat backdrop. EY’s Economic Eye forecast published today, which outlines the latest projections for the all-island economy, also finds that in the event of a no-deal Brexit, 2020 growth in NI would dip to -0.6%.
Northern Ireland has now slipped behind the UK average growth rate after a relatively strong 2018, and continues to experience lower levels of growth than the Republic of Ireland, which is projected to grow at 3.0% in 2020, before slowing to 2.8% in 2021.
Commenting on the figures, Professor Neil Gibson, Chief Economist for EY Ireland said, “The external economic climate is as challenging as it has been for a decade. A no-deal Brexit has the potential to push Northern Ireland into recession and to lead to a contraction in the labour market, which so far has consistently proven wrong some of our gloomier predictions. Although estimates of a no-deal impact vary considerably, they all suggest there will be a cost in the form of disruption across the island. There is no doubt that the resilience and adaptability of businesses will be tested, but their resilience thus far without a functioning Executive and in the shadow of Brexit uncertainty offers encouragement.”
Quick response required when clarity emerges
In the event of a no-deal Brexit, EY Economic Eye finds that Northern Ireland would fall into recession with economic growth of -0.6%in 2020, however this would increase to 1.0% in 2021. The Republic of Ireland will narrowly avoid a similar fate, however 2020 GDP would dip to 1.3%, before growing to 2.1% in 2021. EY also predicts that a no-deal would result in 60,300 fewer jobs across the island by 2022 (41,500 in ROI and 18,800 in NI).
Michael Hall, Managing Partner, EY Northern Ireland added, “Firms must be ready to react quickly when clarity finally emerges over the nature of the UK’s exit from the EU. Low levels of preparedness, particularly amongst smaller firms, is not surprising given the level of uncertainty, but nimbleness and adaptability may be the difference between survival and closure for some. Many larger firms have progressed well with basic preparation but more substantial structural changes, understandably, remain largely on hold. Looking at new ways of working, sourcing new markets and developing new partnerships and relationships is yielding results already for many firms in Northern Ireland, but not every business has the resources at its disposal to invest in new areas.”
NI labour market starting to turn but wage inflation remains
EY Economic Eye finds that employment in both the Republic of Ireland and Northern Ireland has hit new peaks in 2019, with all-island employment at its highest recorded level at 3.2 million people employed and just 158,800 unemployed. Employment in Northern Ireland is forecast to contract slightly in late 2019 and early 2020, on the back of slower growth and high profile job losses, with a contraction of -0.3% in 2020, however growth will return in 2021 at 0.4%.
Neil Gibson comments, “Employers continue to cite accessing talent as their number on priority, above even Brexit, so a cooling of the job creation rate may not be as damaging as would otherwise be the case. Whilst this forecast predicts that the NI labour market has now peaked and begun to contract slightly, the region has consistently beat the odds in recent years, and perhaps it will be able to do so again”
The report finds that in the event of a difficult Brexit, there will be jobs lost, but these are unlikely to be in the locations or with the skills profiles that are in demand from employers for whom Brexit is not a major consideration. As a result, recent upward pressure on pay levels is expected to continue for businesses, with wage inflation in Northern Ireland at 3.3% and the wider UK predicted to be 3.5% in 2019, while the Republic of Ireland will enjoy a similar level at 3.6%.
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