Northern Ireland news

Modest economic recovery set to be tested by new restrictions and Brexit

A quiet city centre in Derry under new Covid-19 restrictions. Extending restrictions will test the north's relatively weak economic recovery to date. Picture by Margaret McLaughlin.
Ryan McAleer

THE north’s private sector returned to growth in the third quarter following the easing of lockdown measures in June.

But new economic analysis suggests the pace of the recovery remains weak and will soon be tested by the potential introduction of new Covid-19 restrictions and the end of the Brexit transition period on December 31.

Ulster Bank’s Purchasing Managers' Index (PMI) showed business activity rapidly picked up pace over July, August and September, following the record rates of decline in the second quarter under the coronavirus lockdown.

The analysis, produced by IHS Markit, is largely based on the experiences of 200 private companies around Northern Ireland, often providing an early indication of how the economy is performing.

There were signs of continued improvement for the construction and services sector during September. In the case of construction, the latest survey reflected the strongest pace of growth for the sector in 26 months.

Manufacturing was the only sector to report a fall in output in September, bringing to an end three consecutive months of output growth.

But closer analysis of business activity over the last month has raised red flags over significant rates of redundancies and a slump in new export orders.

A score above 50 signals growth from the previous month, while readings below 50 indicate contraction.

Ulster Bank’s chief economist Richard Ramsey said while the key indicators improved in September, relative to August, the pace failed to match that of July.

He said new orders broadly stabilised in September after a notable fall during August, but warned that that headline figure concealed the contrasting fortunes of the domestic and export markets.

“The former has seen a pick-up in demand but order books continue to be weighed down by plunging export orders,” he said.

“Northern Ireland’s most important export market – the Republic of Ireland – slipped back into contraction territory in September following two months of growth.”

The economist said sustaining the pace of momentum of growth may prove problematic, owing to the falling rate of new orders.

He identified employment as the one area where there is consistency across all sectors.

“All four sectors continued to reduce staffing levels at a significant rate,” said Mr Ramsey.

Looking ahead to the final three months of 2020, the economist said the north’s private sector entered the fourth quarter in better shape than it started the third.

“However, the pace of recovery remains relatively weak with the low hanging fruit on the growth front already plucked.

“What little momentum the economy has will be tested by the headwinds of more restrictions associated with the resurgence in the number of new Covid-19 cases and Brexit.

“While more support measures from Westminster and Stormont will be forthcoming, the recovery will struggle to gain traction in this environment.”

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