North’s private sector ended 2023 in growth mode, new business survey from Ulster Bank suggests

December PMI shows first growth in business activity since June 2023

Expectations for the general economic situation over the next 12 months have increased, according to GfK’s figures
The north's retail sector rebounded in December, according to Ulster Bank's latest purchasing managers' index. It contributed to private sector output rising for the first time since June 2023. (Andrew Matthews/PA)

Business activity in Northern Ireland returned to growth for the first time in six months during December, a new survey from Ulster Bank suggests.

The latest purchasing managers’ index from the lender indicates the north’s private sector ended 2023 on an upward note.

It followed five months of successive decline tracked by the monthly business survey, which is based on the experiences of 200 businesses across the north’s construction, manufacturing, retail and services sectors.

A report published by the north’s official statistics body on Thursday, suggest the Northern Ireland economy returned to growth in the third quarter of 2023, with output expanding by 0.6% over the quarter and 2.2% over the year.

It meant the north avoided what would be termed a technical recession, which occurs when there are two consecutive quarters of contraction in GDP.

The NI Statistics and Research Agency (Nisra) said the growth was almost entirely driven by the services sector, where output grew by 1.5% in the third quarter.

The Services sector accounts for around 55% of all businesses in the north,

Although the PMI is based on a much smaller sample of businesses, the survey is considered a reliable indicator of the latest economic trends.

While December’s survey showed the private sector - as a whole - back in growth mode for the first time since June 2023, it suggested new orders continued to fall amid subdued demand.

Inflation also continued to be an issue for businesses, with higher wages and material costs contributing to further increases in input prices during December.

However, the rate of price increases was much softer than the average for 2023.

Rising prices were in turn passed on, with output price inflation quickening for the second month running.

Again, the rates of inflation were well below those seen across much of 2022 and 2023.

The survey also suggests the rate of job creation was at a 12-month low in December.

That was perhaps unsurprising in the context of a record period for Northern Ireland’s labour market during the second half of 2023.

Nisra said the north’s employment rate hit a record 72.8% between August and October 2023, with unemployment dropping to a record low of 2.1%.

On a sub-sector basis, December’s PMI showed retail rebounding strongly in the run up to Christmas, with manufacturing also returning to growth.

Services remained in growth mode, but construction endured another horrible month, with another slump in output.

The headline findings of Ulster Bank's December business survey.
The headline findings of Ulster Bank's December business survey.

“Retailers saw a sharp rise in sales following seven successive months of decline,” said Ulster Bank’s chief economist, Richard Ramsey.

“Manufacturers and services companies recorded more modest rates of growth while construction remains mired in recession,” he said.

“Construction output has fallen almost continuously over the last two-and-a-half years while new construction orders have been falling almost continuously for three years.”

Mr Ramsey said while December’s return to growth was welcome, it could prove difficult to sustain.

“New demand remains weak with order books shrinking for the seventh month running,” continued the economist.

“Retail was the only one of the four sectors to record a pick-up in demand last month.

“Despite subdued demand, Northern Ireland’s private sector continued to increase staffing levels, albeit at its slowest pace in twelve months.”

Unsurprisingly against the backdrop of an extremely tight labour market, December’s survey found some private sector firms struggling with recruitment.

The survey also suggests manufacturers reduced their headcount for the second month running with December’s decline the sharpest in almost three years.

“This suggests some manufacturing firms are adjusting their business conditions to the reduced external demand,” said Richard Ramsey.

“Inflationary pressures ended 2023 significantly below where they started the year.

Ulster Bank chief economist Richard Ramsey
Ulster Bank's chief economist, Richard Ramsey.

“But there are signs of costs pressures ticking up again not least in terms of shipping costs with container ships being re-routed away from the Red Sea and the Suez Canal.

“Supply-chain disruption could once again be a feature of the global economy in the year ahead.

“Higher wages were widely cited as a cost pressure in the latest survey while some firms mentioned increased material costs.

“Outside of construction, Northern Ireland’s private sector remains confident for growth in 2024. “But concerns about the lack of government at Stormont remain.”