NI set to remain poor relation with productivity key issue

Falling unemployment does not tell the whole story says Esmond Birnie
Falling unemployment does not tell the whole story says Esmond Birnie

Northern Ireland is set to be the poorest performing of the 12 UK regions in 2016, according to the latest Northern Ireland Economic Outlook from business advisors PwC.

The firm says Northern Ireland will deliver gross value added (GVA) growth of around 1.4% this year - down on 2015’s estimate of 1.5% - and well below the anticipated overall UK projected growth of 2.2%.

This is consistent with the most recent figures (Quarter 3 2015) from NISRA’s NI Composite Economic Index which indicate that in the year to Quarter 3, the Northern Ireland economy grew by 1.1% compared to a UK GVA growth rate of 2.1%.”

In contrast, growth in the Republic of Ireland was estimated as 7% in 2015 and is projected to fall to 5.5% in 2016 – still well over twice that of the UK.

The Economic Outlook says overall UK growth prospects for 2016 are being marked down both nationally and regionally, due to lacklustre growth in domestic and export markets.

Issues impacting include the strength of sterling relative to the euro and a lack of global market confidence, particularly relating to economic problems in China and instability in the oil market.

PwC says yesterday’s decline in global equity markets – where UK, French and Japanese stock fell to more than 20% below their 2015 peaks and US indices dropped 10% on prior highs - reflect growing concerns over the global economy.

The rate of decline in Northern Ireland’s unemployment - the claimant count total fell by more than 20,300 between December 2013 and December 2015 – is slowing and is expected to slow even further during 2016.

Total employment in Northern Ireland has recovered to virtually pre-financial crisis level, however, the region’s employment growth in the two years to September 2015 slowed markedly and was the second-lowest amongst the 12 UK regions and growth was only 40% of that in London and the South East.

The Economic Outlook suggests that claimant count unemployment could even increase slightly over the year if global market conditions and public sector austerity continue to impact on UK and regional performance.

PwC’s chief economist, Dr Esmond Birnie, says the recovery in employment has not been reflected in a proportionate improvement in output and productivity:

“The key issue remains productivity and, while that has been a major challenge for decades, addressing it is a ‘must-do’ for the incoming post-election Executive and should be included in the new Executive’s priorities for a new Programme for Government.”

Although total employment had broadly returned to pre-crisis level by the third quarter of 2015, he said that according to the Composite Index (NICEI), the employment gains had not been reflected in output, which remains 8% below the pre-crisis peak.

“Despite substantial employment growth between 2007-08 and 2015, the number of hours worked per employee fell slightly over the period. Also, although part-time employment increased by around 3% points over the period, this still does not account for the disparity in output.

“As “full-time” employment is defined as anyone working more than 16 hours per week, the data suggest there has been an increase in the number employees working more than 16 hours, but less than the more traditional “full-time” 30-38 hour week.

“That would partly account for the mismatch between employment and output and also suggests that the Northern Ireland labour market is less robust than the headline data suggest.”

Looking ahead he said there was still “a lot of the mountain to climb” before the economy regains the pre-crisis peak:

“We cannot continue to use employment as the predominant measure of economic performance; there are other measures that, when taken together, play into the region’s competitiveness, its capacity for wealth creation and the prosperity of our people.”