Danske Bank downgrades growth outlook for Northern Ireland economy
Danske Bank has lowered its forecast for the growth of the Northern Ireland economy in 2022 with a range of factors including rising inflation and the war in Ukraine creating additional uncertainty around the outlook.
In its latest Northern Ireland Quarterly Sectoral Forecasts report, the Bank is forecasting growth of around 3.6% in 2022, down from its previous forecast of 4.0%, and is forecasting growth of about 1.7% in 2023.
Danske Bank chief economist, Conor Lambe, said: “The Northern Ireland economy grew in the final quarter of 2021 and is estimated to have expanded again in the first quarter of 2022. However, looking forward, the outlook for the economy is particularly uncertain as the war in Ukraine, high inflation, changes to the economic policy environment and Covid-19 all have the potential to impact economic performance.
“We expect the pace of economic growth to weaken as high inflation squeezes consumer incomes and both fiscal and monetary policy are becoming less accommodative, with these factors contributing to the downward revision to our economic growth forecast for 2022.”
Danske Bank expects the rate of price rises to increase further and is forecasting that inflation will average around 7.2% in 2022 and 3.8% in 2023.
Danske Bank expects the accommodation & food services (16.2%) and arts, entertainment & recreation (10.5%) sectors to post the strongest growth rates again in 2022 after a strong 2021. However, as we move towards 2023 the rate of expansion in these sectors is expected to slow as the rebound effects following the sharp drops in activity brought about by the pandemic fade away and the impact of high inflation weighs on spending in consumer-focused sectors.
Output in the wholesale & retail trade sector is also expected to be held back by the squeeze on household purchasing power, supply chain disruption and falling consumer confidence, with Danske Bank forecasting growth of 3.4% in 2022 and 0.8% in 2023.
With ongoing supply constraints and upward price pressures for raw materials, energy and wages, the Bank is forecasting that output in the manufacturing sector will grow by around 3.0% in 2022, lower than the pace of growth for the overall economy. The construction and agriculture, forestry and fishing sectors may also be affected by these issues and are forecast to grow by about 3.7% and 1.2% respectively in 2022.
The information & communication and professional, scientific & technical services sectors are expected to perform strongly, with output growth in 2022 forecast at 5.3% and 4.6% respectively.
Labour Market outlook
Given the recent strength of the labour market, Danske Bank estimates that the annual average number of employee jobs will increase by around 1.1% in 2022, with further growth of around 0.6% projected for 2023.
Danske Bank is also forecasting that the unemployment rate in Northern Ireland will average around 3.2% in 2022 and 3.4% in 2023.
The arts, entertainment & recreation sector is expected to see the largest percentage rise in employee jobs in 2022, growing by 3.4%, closely followed by transportation and storage at 3.3%. The annual average number of employee jobs in the accommodation & food services and wholesale & retail trade sectors is expected to increase by around 2.2% and 1.5% respectively in 2022.
The construction sector is expected to experience a 2.0% increase in employment growth, but the manufacturing sector is forecast to see only a 0.3% increase in the number of employee jobs in 2022 before a decline in 2023 as skills shortages and longer-term trends towards increased automation reduce the number of jobs in the sector.
The information & communication sector is forecast to experience jobs growth of 2.3% in 2022 and employment in the professional, scientific & technical services sector is projected to increase by 0.8% this year as the business services sectors experience a slowdown in the pace of job creation.
Risks and uncertainties
While there is always uncertainty around economic forecasts, Danske Bank said the extent of the risks and uncertainties around its latest projections is considered to be more elevated than normal.
Conor Lambe added: “Inflation in the UK is already at a 30-year high and is expected to rise even further. High inflation erodes consumers’ purchasing power and puts upward pressure on businesses’ costs, which can lead to a squeeze on household spending and act as a drag on business investment. If inflation runs even higher than expected and remains at more elevated levels for a longer period of time, it has the potential to constrain economic growth even further.
“The war in Ukraine is expected to impact the UK and Northern Ireland economies mainly through higher inflation and potentially through adverse impacts on consumer and business sentiment. If the war were to be prolonged or to escalate further, the human consequences would be tragic and the economy could be negatively affected.”