Business

Northern Ireland's economy contracts again after record third quarter gains

The north's economy contracted by 1.4 per cent in the last three months of 2020, but construction output increased by 14.9 per cent to hit a 10-year high
Gary McDonald Business Editor

ECONOMIC output in Northern Ireland contracted 1.4 per cent during the last quarter of 2020 following the record rate of expansion in the previous three months, according to new data from the NI Statistics Agency.

The closely-watched NI Composite Economic Index (NICEI) says the drop in economic growth was largely driven by a decline in the services sector, which was constrained by the shackles of lockdown.

It also points to Northern Ireland again being the worst-performing UK region, where overall output grew by 1.3 per cent over the quarter.

And the level of economic activity in the north currently sits 9.5 per cent below the maximum value recorded in early 2007 whilst UK GDP is 5.1 per cent above its pre-economic downturn peak.

Ulster Bank economist Richard Ramsey said the survey revealed what was expected and flagged a few weeks ago - that the reintroduction of lockdown restrictions in quarter turned off some areas of economic activity and reduced the flow into other areas, albeit the scale of declines was much lower than in quarter two.

“We also know from more timely indicators, for example the PMI, that the local economy appears to have contracted in January and February. Both Brexit and Covid-19 are at play here, and it will be difficult to disentangle these effects in 2021,” he said.

“With lockdowns still in place throughout, it looks like it will be quarter two before the economy records growth again.

“Output is expected to be catapulted higher, led by private sector services, with a strong second half as lockdown restrictions are relaxed and the vaccine roll-out nears completion.

“Record rates of input cost inflation are currently afflicting all sectors but potentially pose the biggest risk for the construction industry. Nevertheless, barring new lockdown restrictions later this year, the Northern Ireland economy is expected to record growth of around 5 per cent and 6 per cent for 2021 and 2022 respectively,” Mr Ramsey added.

Meanwhile the NI Construction Bulletin showed that output in the region increased by almost 15 per cent to hit a 10-year high.

Cahal Carvill, co-head of the construction and engineering team at Belfast law firm Arthur Cox, said: “The most encouraging factor here was the rise in house building, up 21.1 per cent on the previous quarter, as the sector responds to increasing demand for both social and private housing developments.

“Key projects such as the £95m development of 656 mixed social and affordable housing at Glenmona in west Belfast, managed by Apex Housing Association, highlights how the demand has assisted with this increase.

“Looking ahead, Boris Johnson’s “Build Back Better” scheme promises large scale infrastructure projects, but its implementation must be accelerated in order to boost construction output further.”

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