Esmond Birnie: Data shows strong hints of trade diversion away from Great Britain and towards the Republic of Ireland

Also, very importantly, we now have data for four years - 2021, 2022, 2023 and 2024 - which enables us to consider what has happened to trade during the period of operation of the NI Protocol and Windsor Framework. The protocol kicked in at the end of January 2021 and the Windsor Framework has applied since 2023.

The NI economy's total sales (goods and services) grew by 7.5% in 2024. Of course, a major part of that was caused by inflation but much of that growth would have been real or volume growth. That is good news for jobs and living standards.

Just as interesting as the total performance and perhaps disturbing as well is how the pattern of NI's trade shifted in 2024. In 2024 NI's sales of goods to GB (its largest market for goods outside of the NI region) grew by 0.8% whereas sales of goods to the Republic of Ireland grew by more than a fifth (22%). Sales to the rest of the EU (i.e. beyond the Republic of Ireland) also went up by almost 22% as well.

Those who would trumpet NI's alleged great advantages under the dual market access aspects of the Windsor Framework/NI Protocol, that we are allegedly a full part of both the UK’s internal market and the EU’s single market, are probably going to claim the great growth in sales all-Ireland and to the rest of the EU is a consequence of such dual market access. But if they claim that they must also explain why sales to GB grew so poorly: by less than one per cent in 2024 which probably implies a decline once inflation is allowed for.

When it comes to purchases of goods coming into NI it may be notable that 2024 saw a divergence in terms of trade flows relating to GB and those relating to the Republic of Ireland. Both declined, by -6.7% and -3.1% respectively. It may be significant that the greatest decline was in terms of the trade coming from GB to NI which is precisely the trade flow impacted by the Irish Sea border. It is entirely plausible to the extent that households and businesses now find that the frictions associated with the Windsor Framework imply higher costs that they will switch to use suppliers in the Republic of Ireland or the rest of the EU.

All this implies that the official data are showing at least strong hints of trade diversion: the NI-GB trade connection shrinking at the expense of the NI-Republic of Ireland one. Even stronger indications of such trade diversion are presented when we put the March 11 NISRA data into a slightly longer run perspective.

If we use the NISRA NI Economic Trade Statistics database for the entire 2020-2024 period (2020 is an interesting comparison because the NI Protocol kicked in January 2021) then we see that during that period NI's purchases of goods from GB increased by 19.5% but those coming from the Republic of Ireland increased by 44.5%. Cross-border trade was growing at more than double the rate of cross-Irish Sea trade.

It is unlikely some sort of difference in product inflation rates could explain gaps of this magnitude. Once again, this looks like trade diversion. If someone counters this is a product of some structural/sectoral shift in the NI economy, perhaps away from advanced manufacturing and engineering towards food processing, I would ask what has caused such sectoral shifts. Could the shifts themselves be driven by the policy intervention in the shape of the Windsor Framework?

Apart from suggesting changes in the geographical pattern of trade suggestive of trade diversion the NISRA data highlight a very important structural shift is continuing in the NI economy. We are becoming more and more of a service sector economy. During 2024 total sales of goods (manufactured and other commodities) grew by 5.3% but sales of services grew at more than twice that rate. During 2024 NI's sales of services to GB and the rest of the world outside of the EU grew by about one-third which is a very rapid and commendable rate of growth if the statistics are accurate.

This service sector-manufacturing divergence is very relevant to the ongoing debate about the performance of Invest NI and its parent department, the Department for the Economy. Where NI has been successful in recent decades is in terms of service sector foreign direct investment (especially for IT and back offices). Some might say a swing towards the services is inevitable.

At the same time (over and above any negative implications from Irish Sea border costs) there are at least three policy issues which have weighed against the recent performance of NI manufacturing: a very slow planning system, capacity constraints in the sewerage and water system and relatively high industrial electricity prices.

Importantly, this data takes us "only" to the end of 2024. So these results are all pre-Trump's tariffs and other recent geopolitical turmoil in the world economy. Although it may be worth noting that even in 2024 NI's sales of goods to the rest of the world beyond the EU declined by nearly 15%. The figure for 2025, when it comes, will probably show even more decline”.

Dr Esmond Birnie is senior economist at Ulster University Business School