Economy outlook points to 'big prize' for addressing productivity puzzle in Northern Ireland

The case for greater investment in skills and connectivity to address the north's lagging productivity problem is made in PwC's latest economic outlook
Gary McDonald Business Editor

THERE'S a "lucrative prize" for the north's economy if the region can increase its notoriously low productivity, according to PwC's latest UK Economic Outlook.

Productivity levels in Northern Ireland have lagged behind the UK average for many decades, resulting in lower income levels.

But the case for greater investment in skills and connectivity to address what PwC labels ‘the productivity puzzle' is made in its latest outlook, which forecasts that Northern Ireland and the rest of the UK will see subdued economic growth next year.

It predicts that the north will deliver a below-average performance in 2020, with growth estimated at 0.8 per cent, down from 1.0 per cent this year. The UK average is projected to see a similar fall from 1.2 per cent in 2019 to 1.0 per cent in 2020.

UK economic growth has been stagnating, particularly since the financial crisis, despite record low levels of unemployment.

As well as the Brexit-related uncertainties and the impact on investment, the report considers other reasons for this by comparing the UK's lagging productivity levels with other European and G7 countries, as well as regional differences, to identify solutions.

The report shows that UK GDP could be boosted by 4 per cent - or £83 billion - if regions with below-average productivity levels could make up even half of the gap.

Official government statistics show that although Northern Ireland has had record levels of employment (72.3 per cent), labour productivity fell by 0.5 per cent in quarter two compared with the same in the previous year. It followed two consecutive periods of zero growth and there was no growth in output per job during the same period.

ThePwC report suggests a number of strategies that could be employed to help boost productivity - notably that businesses can promote workplace training and upskilling.

It revealed that workers in Northern Ireland were the most open to retraining and upskilling, and two out of three said their employers were providing opportunities to improve their digital skills. In addition, investment in local infrastructure could boost connectivity (and therefore productivity).

Paul Terrington, PwC NI chair and head of UK Regions, said: “At the heart of the case for greater connectivity is the idea of economies of agglomeration. It means that bringing businesses and people together - in a variety of ways - produces opportunities for collaboration, competition and innovation.

“We find, for example, that a 1 per cent increase in skills is associated with a 2 per cent increase in productivity in a local area. Physical connectivity also matters, which reinforces the case for increased investment in transport infrastructure for areas that tend to lag behind.

“Similarly, investment in high-speed broadband would deliver significant benefits, particularly for rural areas, by offering businesses and the workforce far greater connectivity and flexibility.

“The prize from closing the regional productivity gap could be large. If the areas that are performing below the UK average can close 50 per cent of this gap in productivity performance, it could add around £83 billion to the economy, equivalent to almost 4 per cent of GDP.”

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