Recovering economy faces public spending crunch
THE Northern Ireland economy may well be heading for the eagerly anticipated 'upswing' but inevitable cuts in public spending will moderate the economic recovery and make public sector reform a matter of urgency.
That's the warning today from Ulster Bank's Northern Ireland economist, Richard Ramsey who said recovering from the 'hangover'caused by the credit crunch would present a major challenge to the Province.
Writing in the bank's Quarterly Economic Review, Mr Ramsey said he greed with several sources claiming to see the first signs that a
recovery might be on the way and predicted "modest growth" in 2010.
"Northern Ireland benefits from an additional 2,000 per citizen in public expenditure compared to the UK average and is therefore much
more vulnerable to the forthcoming slashing of public expenditure than other UK regions.
"With 9bn per annum in efficiency savings required by the UK government, Northern Ireland will be expected to make its share of
cuts.
"We estimate that Northern Ireland will have to make at least 200m per annum in efficiency savings from 2011."
Against what he termed the "more austere" public expenditure environment, Mr Ramsey said the Executive needed to accelerate and
deepen public sector reform.
"There is now increased urgency to reduce expenditure and raise revenues, and tough decisions have to be made."
Mr Ramsey's comments come as the Purchasing Managers' Index (PMI) report published omn Monday suggested the worst of the recession had been and gone.
The latest report from the Royal Institute of Chartered Surveyors (RICS) also reports some improvement in the housing market and
expressed optimism that conditions will improve further in the months ahead.
"It is our belief that the very worst of the downturn is behind us, and, whilst the Northern Ireland economy will experience a deep contraction of around four per cent this year, we expect it to return to modest growth in 2010," said Mr Ramsey, adding that performance
would be broadly consistent with the UK as a whole whilst the Republic will experience a severe economic contraction of around eight
per cent.
"The pace of output decline in property-related sectors has slowed, however sectors such as retail and tourism have increasingly been
impacted by falling consumer spending.
The influx of shoppers from the Republic, although very welcome, hasn't been enough to offset Northern Ireland's consumer downturn. The exchange rate environment also hasn't insulated the tourism sector from falling tourist demand," he said.
With regard to the labour market, he predicted that unemployment would rise above eight per cent by the end of 2009 and will average
nine per cent in 2010. However he said unemployment would recede moderately in the second half of next year.
But it was the inevitable 'public expenditure crunch' that he warned would be the biggest economic issue in the years ahead.
"Northern Ireland also needs to reinvent itself as an economy that is much less dependent on public expenditure and needs a new
regional economic strategy designed to do so,"
he said.
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Thursday 24 May 2012
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