Business and politicians should assume that “Brexit means Brexit” and develop bold strategies to internationalise the local economy, according to the latest Northern Ireland Economic Outlook (NIEO) from PwC.
PwC says that assuming the UK will enjoy continued unrestricted access to the Single Market, or that Westminster will maintain current levels of EU financial support, post 2020, could lead organisations and even complete sectors to become complacent about their future competitiveness.
The latest NIEO forecasts that the deceleration in Northern Ireland’s economic recovery, which has been evident over the past year, will continue, but that outright recession is now unlikely.
However, despite recent positive economic news for the UK as a whole, the report says that local output remains around 7% below the pre-recession peak in 2008 and that the region is not generating the productivity gains that will create wealth and increase wages and household disposable incomes.
The firm also warns that the pace of recovery is threatened by a combination of global slowdown and post-referendum uncertainty.
The region’s economic growth slowed from 2.2% in 2014 to 1.5% in 2015 and PwC says the province can expect growth of only around 1.2% in 2016 and that could fall to as low as 0.3% in 2017, in response to the Prime Minister invoking Article 50, which starts the clock on the UK’s EU exit process.
“Theresa May said that “Brexit means Brexit” and business, politicians and others should work on the principle that this is inevitable and focus on developing radical options for growth and international competitiveness,” said PwC chief economist in Northern Ireland Esmond Birnie.
“The outcome of Brexit is more likely to be favourable if the Executive can clearly identify its key priorities for a post-Brexit world and lobby vigorously for these to be included within the UK’s negotiating position.
“It would also be a mistake if this process automatically assumed continued, unfettered Single Market access.
“Merely negotiating for new signatures on the traditional cheques to fund the status quo and assuming that HM Government will simply replace all current EU funding streams, will not close the existing prosperity gap with the rest of the UK, let alone rebalance the economy, drive up productivity and restore wages and household incomes.”
The latest PwC Recovery Dashboard, shows that total employment has now passed the previous June 2008, pre-recession peak. Service-sector jobs now account for around 82% of all local employment - 17,600 more than in June 2008, but construction employment is still 16,700 below its pre-recession peak of December 2007.
However, although overall job numbers are now ahead of the pre-recession peak; in real terms, average gross weekly earnings are still £23/week lower than in 2009, with real disposable household income around £1,800 less than in 2007
The firm warns that it is “misleading and even dangerous” to focus on employment as the yardstick for recovery and a proxy for prosperity. The report says that, despite the increase in total employment numbers, this seemingly larger workforce is actually working fewer hours per head than were worked pre-recession and this is a key factor in holding down productivity and wages.
Addressing this situation is essential to rebalancing the economy and is the key to recovery and prosperity, in a post-Brexit world.
“Closing this productivity gap would be challenging under normal circumstances, but with the UK committed to leave the EU, those challenges will be amplified,” said Dr Birnie.
“It is therefore essential that the particular needs of the region are included in the UK’s overall negotiating position as it plans the country’s post-Brexit future.”