Let's hope NI economy doesn't go to the dogs in 2018
OVERALL, 2017 has probably been a more positive year for the Northern Ireland economy than many would have expected. A wide range of indicators have improved during the 12 months, including private sector employment (now at a record high), construction activity, and both tourism and trade.
But many other indicators have been on the decline, and there are also some clear warning signs that the economy will begin to slow down in 2018.
Here is a flavour of some of the key trends we have seen this year, and which will set the context for moving into the 12 months ahead.
- Trade: 2017 has largely been characterised by sterling getting weaker against a range of currencies, which has provided a significant boost to Northern Ireland’s exporters. Indeed, a number of our major exporters have reported record profits this year.
We also saw some areas of manufacturing activity at its highest ever levels, including manufacturers of metal products and pharmaceuticals. Linked to this higher level of trade, Northern Ireland’s ports have been busier than ever.
- Retail: The retail sector has had some major headwinds and tailwinds. On the positive side, retailers particularly in border areas have benefited from the exchange rate, making shopping this side of the border very attractive to consumers from the Republic.
On the other hand, consumers in the north have been squeezed by rising inflation and subdued wage growth, impacting on consumer spending. In addition to impacting on the retail sector, this has also been evident in new car sales which have fallen at their fastest rate in six years.
- Tourism: It’s not just shoppers that have been crossing the border to benefit from the exchange rate, tourists have too. And it’s not just from the Republic of Ireland. The local tourism industry has posted record highs on a number of fronts ranging from visitor numbers to cruise ship arrivals. As a result, the hotel and hospitality sectors have been thriving.
Meanwhile Northern Ireland is Airbnb’s “fastest growing” UK visitor destination this year. Not surprisingly, the accommodation and food services sector (effectively hotel and hospitality) saw the largest increase in employment of any sector.
The buoyant tourism sector is also largely responsible for Belfast’s crane-cluttered skyline, with the construction industry benefitting from the increased demand from overseas visitors for hotel accommodation.
- Construction: Other areas where construction activity has been taking place include offices, student accommodation, and infrastructure with for instance the long overdue A6 road upgrade. There has also been a much-needed pick up house building with housing starts at their highest levels in seven years.
However, supply constraints remain, which are acting to push up prices. New build properties have seen prices rise 18.5 per cent over the year to quarter three in 2017. Construction employment has risen in line with rising activity, however the number of people employed in Northern Ireland’s construction sector is still only three-quarters of what it was a decade ago.
- Labour market: The labour market has seen an overall improvement. Private sector employment continues to rise and set fresh record highs. And the unemployment rate has fallen to a nine-and-a-half year low. IT was the fastest growing sector of the jobs market in 2017, with the number of jobs rising by around eight per cent.
Manufacturing has also posted strong jobs growth over the past year, with employment now back to where it was a decade ago. This is despite a number of high profile job loss announcements, most notably the closure of the JTI factory in Ballymena. In relation to the unemployment rate, this perhaps flattering, as it has actually been falling for the wrong reasons.
Rather than people coming off the unemployment register and into employment, we are actually seeing people coming off the unemployment register and into the economically inactive category. This includes people who are long-term sick, students and family carers for instance. In 2017, we created more economically inactive people than we did jobs.
- Public spending: One significant area that has not seen any improvement is the public finances. Indeed, last month in his Budget, the UK Chancellor highlighted that he is going to have to borrow even more. In Northern Ireland, the squeeze in public spending has seen public sector employment fall back to its lowest level since 2001.
The fact that there was no Northern Ireland Executive operating for almost all of 2017 made it even more difficult for tough but necessary decisions to be taken. Indeed, politics more generally presented a major economic challenge in 2017. This includes Northern Ireland, the UK and internationally, with issues being grappled with including Brexit and protectionism in the US.
With regard to the latter, this has presented a threat to one of our largest local employers, as Canadian owned Bombardier has faced major tariff increases for importing its products into the US market.
Looking ahead, this is extremely concerning in the context of the UK needing to negotiate post-Brexit trade deals around the world and looking to the US as a key trading partner.
Overall, 2017 was better than expected but, looking at last month’s Budget projections, it is clear that the outlook for the economy has been downgraded significantly, and anything other than an economic slowdown in 2018 would be a considerable surprise.
The big themes in the year ahead are likely to include political uncertainty, the ongoing rise of Belfast and Northern Ireland as a visitor destination, and the unfolding story of what Brexit will mean for the border on the island of Ireland.
2018 is the Chinese year of the dog. And everyone will be hoping that doesn’t become a metaphor for the economy.
Richard Ramsey is Northern Ireland chief economist at Ulster Bank. Follow him on Twitter at @Ramseconomics
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