Business

Economic recovery under way - but rising Covid cases and Brexit pose risks to economy

Danske Bank is sticking with its previous forecast that the north's economy will shrink by 11 per cent this year and then bounce back to grow by 7 per cent in 2021.
Gary McDonald Business Editor

A GRADUAL return of economic activity appears to be under way in the north, a new survey has found.

But the spiralling numbers of Covid-19 cases and the impending end of the Brexit transition period could stymie any fragile recovery, Danske Bank latest quarterly economic report warns.

The bank is sticking with its previous forecast that the Northern Ireland economy will shrink by11 per cent this year and then bounce back to grow by 7 per cent in 2021.

But the bank's chief economist, Conor Lambe cautions that there is huge uncertainty and risk to the outlook for the local economy.

He said: “The economic recovery now appears to be under way and we expect the third quarter output data to show a reasonably strong increase in activity.

“But most of the initial gains from re-opening the economy after lockdown are now behind us and with recent rises in the number of Covid-19 cases and the need for tougher restrictions to be imposed, we expect economic growth rates to begin to moderate in the final quarter of the year.

“The end of the Brexit transition period is also expected to impact the pace of the economic recovery.”

He added: “We continue to believe that the UK and the EU will agree and implement the terms of a new free trade deal from next January, at which point the Northern Ireland Protocol will also take effect. However, some trade frictions are still likely to be introduced when the transition period ends.

“It's clear that there are a number of headwinds facing the local economy, and despite our relatively strong annual growth forecast for next year, economic output is still expected to be around 3 to 4 per cent below its pre-coronavirus level in the final quarter of 2021.”

Danske Bank's report predicts the labour market will weaken over the remainder of 2020 and the annual number of employee jobs will fall by around 1.3 per cent in 2020 and by a further 2.8 per cent in 2021.

Despite measures put in place by the government to try to minimise redundancies, the bank still expects significant job losses in the consumer-focused sectors this year, with accommodation & food services contracting by 8.3 per cent and arts, entertainment & recreation to fall by 5.9 per cent.

Looking across various sectors, the bank predicted that the accommodation and food services sector will experience an output fall of around 37 per cent this year while activity in the arts, entertainment & recreation, sector will decline by 26 per cent, construction by 16.9 per cent and the wholesale & retail trade will fall back by more than 11 per cent.

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