Danske Bank forecasts upward revision but still expects Northern Ireland economy to contract in 2023

Northern Ireland’s economy is still forecast to contract in 2023 but the fall in annual economic output is expected to be smaller, according to a new report from Danske Bank.

In its latest Northern Ireland quarterly sectoral forecasts report, the Bank is projecting that the Northern Ireland economy will contract by around 0.3% in 2023 as high inflation and changes to the economic policy environment are continuing to impact economic performance.

The forecast represents an upward revision on the Bank’s previous expectation of a 1% fall in activity this year, however Danske Bank said the economic outlook remains “highly uncertain”. The Bank is also projecting that the Northern Ireland economy will grow by about 0.9% in 2024.

Danske Bank’s Chief Economist, Conor Lambe, said: “The UK and Northern Ireland economies are continuing to face challenges as we move through 2023. High inflation is still squeezing household purchasing power, consumer confidence remains low and the monetary policy environment is considerably tighter.

“However, the economy has proved more resilient than previously expected and the labour market remains in a relatively robust position. We still expect annual economic output to fall this year in Northern Ireland and the wider UK but we have revised our forecasts upwards relative to our previous report.”

Danske Bank is forecasting that the wholesale & retail trade sector will experience the deepest contraction in activity of around 1.9% in 2023 but return to growth of about 1.0% in 2024.

Other consumer-focused sectors including accommodation & food services and arts, entertainment & recreation are also projected to see falls in output in 2023 of approximately 1.7%.

The Bank is forecasting that output in the manufacturing sector will decline by around 1.0% this year followed by growth of about 0.6% in 2024. Output in the construction sector is forecast to fall by about 0.4% this year.

Although the Bank is forecasting that total GVA will decline this year, some service sectors are projected to see increases in activity. The professional, scientific & technical services sector is forecast to grow by around 1.9% and the administrative & support services sector is projected to expand by about 1.2%. Activity in the information & communication sector is also expected to increase by about 1.0% in 2023.

Danske Bank expects the rate of jobs growth to slow sharply this year. The annual average number of employee jobs is projected to increase by about 0.2% in 2023 and by around 0.3% in 2024.

The Bank is also forecasting that the unemployment rate in Northern Ireland will average around 3.2% in 2023, before increasing to an annual average of about 3.5% in 2024.

Employment in the wholesale & retail trade sector is projected to decline by around 2.2% in 2023. For the arts, entertainment & recreation sector, the number of employee jobs is projected to contract by about 1.5%. The number of jobs in the accommodation & food services sector is also expected to decline this year, by around 1.4%.

The manufacturing sector is forecast to experience a decline in the number of jobs of around 1.2% in 2023.

With less reliance on consumer spending, the professional, scientific & technical services and information & communication sectors are expected to experience relatively high rates of jobs growth this year with annual employment projected to rise by 8.3% and 2.2% respectively in 2023, followed by expected growth of about 1.6% and 2.3% in 2024.

Danske Bank said that the extent of the risks and uncertainties around these projections is considered to be particularly elevated.

Conor added: “Persistent inflation is still a risk to the economic outlook with inflation in the UK remaining near its multi-decade high. Although we think it has likely peaked, the rate of price rises is still expected to remain above its 2% target throughout this year. If inflation remains higher than forecast and declines more slowly than anticipated, it has the potential to constrain economic activity even further.”