EY upgrades economic growth forecast for Northern Ireland in 2022
THE north's economy could experience a higher level of growth in 2022 than previously forecast, according to EY.
The professional services giant's analysis said the Northern Ireland economy grew by six per cent in 2021. And on the back of the strength of the local labour market and the soft furlough landing, it expects the economy will grow by 5.3 per cent next year.
That's an upgrade from EY's April 2021 forecast, when it predicted the economy would likely grow by 4.1 per cent in 2022.
Economic forecasts for Northern Ireland in 2022 have ranged from 2.5 per cent (PwC) to 4.7 per cent (Danske Bank).
But EY said the economy continues to face potentially significant headwinds, particularly around inflation.
In one scenario, EY's chief economist Neil Gibson said inflation could hit as high as 4.9 per cent in 2022, before levelling out at 3.3 per cent for the long-term.
That scenario is based on the assumption that the recent trend of elevated prices continues into the first half of 2022, with sustained wage inflation, higher energy prices and an increased cost of consumer goods due to new standards and policies.
The mid-range forecast expects UK inflation to rise to 3.6 per cent before reverting to 2.1 per cent.
It comes as the Republic yesterday announced that its annual rate of inflation rose to 5.3 per cent in November, its highest level for 20 years.
EY said economic growth in 2023 is likely to be much more modest at 2.1 per cent.
The accountancy group said Northern Ireland is ending 2021 on a stronger platform than most had previously projected. It described the performance of the local labour market as “remarkable”, adding that swift policy response and resilient and adaptable business base had kept the economy in relatively good stead.
But it warned that sustained Covid-19 case levels, together with rapidly rising inflation, labour shortages and the reintroduction of restrictions on hospitality and travel, mean more challenging conditions in the final weeks of 2021 and into the new year.
“The current trajectory of the pandemic means that uncertainty levels are higher than anticipated heading into the new year,” said Neil Gibson.
The economist said that uncertainty had also made forecasting the direction of the economy much more difficult.
“A key lesson from the last 21 months is that many long-held macroeconomic assumptions are now open to challenge,” he said.
“The economic environment is changing, and we cannot assume tomorrow looks, or behaves, like yesterday.”
EY has also warned that employers face wage inflation over the coming months, with data on wage levels and vacancies painting a competitive picture for firms in 2022.
EY's managing partner in the north, Michael Hall, said: “Wage pressures will likely increase over the course of the new year as the labour market tightens further and employees gain more choice so creativity and ingenuity will be key to success.”