Danske Bank downgrades growth outlook for Northern Ireland economy
DANSKE Bank has said the Northern Ireland economy is likely to slow down this year in the face of rising inflation and the war in Ukraine.
The lender has downgraded its growth forecast for the economy in 2022, anticipating it will now grow by 3.6 per cent.
It comes after the Office for Budget Responsibility (OBR) published it grim outlook for the UK economy in tangent with UK Chancellor Rishi Sunak's Spring Statement last month.
Citing high global inflation and continuing supply chain pressures, the OBR said the UK economy would likely grow by 3.8 per cent in 2022, and by 1.8 per cent in 2023.
The Treasury-funded body said UK inflation would likely average at 7.4 per cent in 2022, peaking at 8.7 per cent in the fourth quarter.
Danske Bank said the Northern Ireland economy is likely to lag behind UK growth next year, growing by 1.6 per cent.
The lender had forecast 4.7 per cent growth for Northern Ireland in 2022 as recently as the third quarter of 2021, before revising that down to four per cent in Q4.
Stormont's official data show the north's economy grew by 1.2 per cent between the third and fourth quarters of 2021 and finished the year 4.9 per cent up on the same period in 2020.
Danske Bank's chief economist Conor Lambe said while that growth has continued into early 2022, the combination of the war in Ukraine, high inflation, Covid-19 and changes to the economic policy environment has made for an uncertain road ahead.
“All have the potential to impact economic performance,” he said.
“We expect the pace of economic growth to weaken as high inflation squeezes consumer incomes and both fiscal and monetary policy are becoming less accommodative, with these factors contributing to the downward revision to our economic growth forecast for 2022.”
Danske Bank expects the rate of inflation in Northern Ireland to be slightly below that of the UK, averaging at 7.2 per cent in 2022 before dropping to 3.8 per cent in 2023.
The lender expects the accommodation and food services (16.2 per cent) and the arts, entertainment and recreation (10.5 per cent) sectors to post the strongest growth rates again in 2022 after a strong 2021.
But that will slow later in the year partly due to the impact of high inflation on spending in consumer-focused sectors.
Conor Lambe said: “Inflation in the UK is already at a 30-year high and is expected to rise even further. High inflation erodes consumers' purchasing power and puts upward pressure on businesses' costs, which can lead to a squeeze on household spending and act as a drag on business investment.
“If inflation runs even higher than expected and remains at more elevated levels for a longer period of time, it has the potential to constrain economic growth even further.”