North's economy slowed in second quarter as cost challenges mount for businesses

Some 55 per cent of firms reported a slow-down in demand in the second quarter of 2022.
Some 55 per cent of firms reported a slow-down in demand in the second quarter of 2022.

THE north’s economy slowed in the second quarter of the year, as businesses reported mounting pressure from costs, a new survey has shown.

The quarterly report from the Northern Ireland Chamber and business advisory group BDO showed most firms (82 per cent) trading positively in the April to June period.

But there were clear signs that growth in the economy is slowing down, with more than half (55 per cent) of firms reporting a slow-down in demand. For 15 per cent of companies, the slow-down was reported as “significant”.

The vast majority (91 per cent) of the 263 businesses surveyed said they believe a recession is on the way, if current economic conditions continue.

Economist Maureen O’Reilly, who compiled the quarterly report, said the survey has historically matched the official data tracking the performance of the Northern Ireland economy.

“When you reflect back on it, it is a good indicator of how things are performing,” she said.

Some 72 per cent of businesses said costs are now a significant challenge, with the survey showing a substantial surge in the proportion of firms reporting pressure from labour costs between the first and second quarters of the year.

Almost two-thirds (62 per cent) also said they are facing significant challenges with labour availability.

And 83 per cent of manufacturers and 75 per cent of services businesses expect to put prices up over the next three months.

The rising costs appears to have knocked confidence in the business community, with just 52 per cent anticipating a growth in turnover over the next 12 months, well down on the 70 per cent from the end of 2021.

Despite the inflationary challenges, the NI Chamber survey showed a continued trend in businesses adapting to the new post-Brexit trading arrangements under the Northern Ireland Protocol.

Some 43 per cent said they have now “adapted well” – up from 33 per cent in the first quarter (Q1).

Just one-in-ten (10 per cent) said the arrangements continue to pose “significant challenges”, down from 16 per cent in Q1.

But when separately asked how Brexit had impacted their business, more businesses said the negative outcomes outweighed the benefits.

Two-thirds (66 per cent) said EU exit had negatively impacted costs, with 44 per cent reporting a negative impact on access to skilled staff.

NI Chamber chief executive Ann McGregor said: “While one in four businesses continue to find current post-EU exit trading arrangements challenging, 70 per cent are adjusting to the changes, up from 52 per cent in the previous quarter.

“This suggests a considerable improvement under the arrangements in their current form.

“Northern Ireland’s export balances under these current arrangements are also positive in contrast to some other UK regions, where balances suggest a deteriorating export position.”

Brian Murphy, managing partner at BDO NI, said when considered in the context of Covid-19 and Brexit, the 82 per cent of businesses reported to be trading positively in Q2 was “an incredible result”.

But with 72 per cent now concerned over cashflow, he said a partnership approach with government will be needed.

“The challenges ahead have the potential of being even more impactful on our economy than what we have dealt with in recent years, plus there may be no quick fix and we may have a long road ahead of us,” he said.

“As well as businesses, employees, suppliers and the banks, our Executive has an important role to play in continuing to use its influence in Westminster to make the right calls on taxation, regulation, investment and if needed, financial intervention.

“Businesses can prepare for rainy days; they can adapt to a changing climate, but they still need everyone to work together to help weather a storm.”