Economic growth will be slightly better than previously thought but the spending power of households will come under greater pressure according to the latest forecast from Danske Bank.
Revising growth for 2017 up to 0.8% from 0.5% before and predicting a figure of 1.0% for 2018, the latest Quarterly Sectoral Forecasts report, warns that inflationsry pressure will impact on spending in the province.
While the has raised its forecasts, the rate of growth expected in the coming years is below the 1.5 per cent estimated for 2016, which was the strongest rate of growth since 2007.
“The post-referendum picture is still emerging and will continue to do so over the coming quarters,” said Danske economist Conor Lambe.
“A weaker outlook for demand suggests we might see a slight deterioration in the labour market over the short-term. There are also a number of downside risks which could lead to lower growth than we are currently forecasting, including political instability and a larger than expected negative impact on confidence as a result of Brexit.”
Although consumer spending will continue to rise in the years ahead, albeit at a lower rate, he said the weaker pound would continue to offer a modest boost to net exports.
“Therefore, we expect the Northern Ireland economy to continue growing over the next couple of years. ”
At a sector level, private services are expected to continue to be the main drivers of growth.
The information and communication sector is expected to be the fastest growing (4.4 per cent), followed by the professional, scientific and technical sector (3.3 per cent) and the administration and support sector (2.8 per cent).
The wholesale and retail trade sector is forecast to make the biggest contribution to overall GVA growth in 2017.
“The consumer focused sectors are forecast to continue their momentum from 2016 into 2017.
“However, this will be short-lived as higher inflation will have a negative impact on household purchasing power. Inflation has already started to accelerate and this is likely to continue through 2017 as the impact of a weaker sterling makes its way along the supply chain.”
The outlook for investment orientated sectors remains relatively weak, however due largely to uncertainty around Brexit and the shape of any trade deal emerging from negotiations.
“While the Prime Minister’s speech in January provided some details around the Government’s plan for Brexit, there is still a lot we don’t know, including what access UK-based businesses will have to EU markets in the future and when a formal separation from the EU will actually take place,” said Mr Lambe.
“This uncertainty will continue to cause businesses to postpone some capital spending, disproportionally damaging the manufacturing and construction sectors.”
The report adds that a weaker outlook for demand suggests that there will be a slight deterioration in the Northern Ireland labour market over the short-term.
Employment levels are expected to fall by around 400 jobs in 2017, equivalent to a contraction of 0.1 per cent. Modest job losses are expected to continue in 2018 with the further loss of around 1,000 jobs, given the uncertain economic conditions.
It also higlights a number of risks which could have implications for the local economy, including political instability, a larger than expected Brexit-related impact on consumer and business sentiment and further austerity.
“There is uncertainty around the impact of Brexit and what it means for the local economy and that is something that is not going to change anytime soon,” said Mr Lambe.
“The only thing we do know for certain is that change is coming. For a number of businesses across Northern Ireland, the loss of access to the EU single market and potential future barriers to cross-border trade are major concerns. Businesses should be thinking through the implications of different scenarios now so that they are ready to act once the terms of the Brexit deal become clear.”