Business

As if we didn't know... recession will definitely bite

. Danske Bank believe the wholesale and retail trade sector will experience the deepest contraction of around 4.5 per cent next year.
. Danske Bank believe the wholesale and retail trade sector will experience the deepest contraction of around 4.5 per cent next year. . Danske Bank believe the wholesale and retail trade sector will experience the deepest contraction of around 4.5 per cent next year.

NORTHERN Ireland will officially tip into recession early next year... according not just to one local bank, but two.

Just 24 hours after Ulster Bank's PMI report confirmed that the region's private sector output declined for a seventh consecutive month in November, Danske Bank's quarterly sectoral forecast paints an equally grim picture of the state of the local economy.

And it believes the current cycle of high inflation, low consumer confidence and tighter monetary policy means the north will definitely experience a recession in 2023.

It comes as the British Chambers of Commerce (BCC) said it expects the UK economy to remain in recession for five quarters before an anaemic recovery in 2024, though it says inflation may have peaked at 11.1 per cent.

Danske believes the local economy will grow by around 4 per cent this year, something of recovery from the impacts of the coronavirus pandemic.

But it has revised down its previous forecast of a 0.5 per cent annual fall in economic activity in 2023, and now expects output to contract by at least twice that figure.

Ulster University: Northern Ireland economy to contract in 2023 before recovery in 2024

The bank's chief economist Conor Lambe said: “The UK economy contracted in the third quarter of 2022 and we think economic activity in Northern Ireland is also likely to have declined.

“Output is then projected to fall further in the final quarter of the year and through most of next year with both economies experiencing a period of recession as a number of factors adversely impact activity levels.”

He added: “Inflation is expected to decline gradually during 2023 but remain elevated and weigh down on household purchasing power.

“Consumer confidence is also particularly low and monetary policy is tightening. Looking forward, and while noting the considerable uncertainty around the outlook, we expect annual output in Northern Ireland to decline by around one percent next year.”

Broken down by sector, Danske Bank believe the wholesale and retail trade sector will experience the deepest contraction of around 4.5 per cent next year, after experiencing an expected fall in output of around 2.2 per cent in 2022.

READ MORE: Northern Ireland private sector weakens for seventh month in a row

Other consumer-focused sectors including accommodation & food services, and arts, entertainment & recreation, are also projected to experience falls in output in 2023 following very strong rates of growth in 2022 as annual output recovered from the impacts of the pandemic. Activity levels are forecast to decline by around 3.9 per cent and 3.8 per cent respectively in the two sectors in 2023.

The bank projects that the manufacturing sector will grow by around 2.1 per cent this year before experiencing a decline in output of about 1.1 per cent next year. Output in the construction sector is forecast to fall by 1 per cent next year, following expected growth of about 3 per cent this year.

Danske says it expects the annual average number of employee jobs to increase by around 2.7 per cent in 2022. But with annual economic output expected to decline in 2023, it is projecting that the average number of jobs will fall by around 1 per cent next year.

It is also forecasting that the unemployment rate in Northern Ireland will average around 2.9 per cent in 2022, before increasing to an annual average of 3.9 per cent in 2023 as employment levels decline.

Worst-hit sectors, it predicts, will be wholesale/retail (down 2.6 per cent), manufacturing (down 2.2 per cent), arts/entertainment (down 2 per cent), accommodation/food services (down 1.7 per cent).

Mr Lambe added: “One of the risks that could impact the economy going forward is persistent inflation, which is at a multi-decade high.”

The current UK rate of inflation is currently 11.1 per cent, with an updated figure due to be published on Wednesday.

“We think it will peak in the current quarter, but the decline back towards its 2 per cent target is likely to be gradual, and we are projecting that inflation will average around 7.5 per cent in 2023.

“But if it were to decline more slowly than anticipated and run higher than forecast, inflation has the potential to constrain economic activity even further.”