Services sector the backbone of economic growth in 2016

However concerns and uncertainty over the UK’s position in Europe could have a considerable impact the bank has warned.

The Quarterly Sectoral Forecast report this morning suggests that the economy will expand by 1.8 per cent this year and 2.1 per cent in 2017.

However, the rate of growth in 2016 has been revised down marginally from previous forecasts with ongoing austerity expected to dampen the domestic economy.

Public sector job losses feature heavily in the employment outlook and consumer spending is expected to be more measured in the second half of 2016 as cut backs take hold.

The report notes that one of the biggest risks to the local economy is the upcoming EU in/out referendum which has the potential to drag down investment levels.

BREXIT is casting a cloud of uncertainty on the future economic environment for firms across Northern Ireland. Indeed there is the possibility that investment right across the UK could dry up in the preceding months to referendum.

“The Northern Ireland economy should continue with its recovery in 2016, however the pace of growth will not be overly exciting,” said Danske chief economist Angela McGowan.

“Although the annual growth rate is expected to be around 1.8 per cent, there are, as always, a small number of sectors that will grow at an ‘above average’ rate and of course the public sector will continue to shrink.”

High growth sectors in Northern Ireland will include ICT, admin and support services and professional and scientific services which together account for around 11.5% of the local economy.

Moderate growth is expected in retail, manufacturing and construction.

The wholesale and retail trade is the largest sector in Northern Ireland representing 14.5% of local GVA and employing around 135,000 people (16.4 per cent of all employees).

Manufacturing is Northern Ireland’s second largest sector in output terms and third largest in terms of employment and is expected to grow by 1.9% after significant pressure in 2015 through weak world demand and the strong pound.

The Danske forecast is predicated on the euro area economy continuing to strengthen, supporting demand for local exports.

It warns however that the “foreign exchange dilemma” still presents significant uncertainty for local manufacturers.

Construction is expected to benefit from further recovery in the housing market with output growth of 1.6% this year and 2.6% in 2017 as house prices are expected to rise by around 4%.

Secondly, the construction sector will benefit from the 12.4% increase in real terms in Northern Ireland’s capital spend on public infrastructure first announced during the Autumn Statement.

“The Northern Ireland economy will continue to expand in 2016 but at a very moderate rate,” said Ms McGowan.

“Although the public expenditure cuts do not look as harsh as we had initially expected, there is still a dire need for the private side of the economy to expand output, raise revenue streams and create jobs.

“Hopefully the macro economy will not present too many surprises for our business sector in the year ahead as economic stability is conducive to investment.”