Northern Ireland economy to enter recession in 2023: Danske Bank forecast

The bank is forecasting a growth in the Northern Ireland economy of around 4% during 2022, however, it has revised its previous forecast of a 0.5% annual fall in economic activity in 2023 downwards and now expects output to contract by around 1% next year.

The figures are contained in the bank’s NI Quarterly Sectoral Forecasts report.

Danske Bank chief economist, Conor Lambe, said: “The UK economy contracted in the third quarter of 2022 and we think that economic activity in Northern Ireland is also likely to have declined.

"Output is then projected to fall further in the final quarter of the year and through most of next year with both economies experiencing a period of recession as a number of factors adversely impact activity levels.

“Inflation is expected to decline gradually during 2023 but remain elevated and weigh down on household purchasing power.

"Consumer confidence is also particularly low and monetary policy is tightening.

"Looking forward, and while noting the considerable uncertainty around the outlook, we expect annual output in Northern Ireland to decline by around one percent next year.”

The bank’s forecast is that the wholesale & retail trade sector will experience the deepest contraction next year (around 4.5%) next year, following on from an expected fall in output of around 2.2% in 2022.

Accommodation providers, food services, arts, entertainment and recreation are also projected to experience falls in output in 2023, despite strong rates of growth in 2022 as annual output recovered from the impacts of the pandemic.

Danske Bank said: “Activity levels are forecast to decline by around 3.9% and 3.8% respectively in the two sectors in 2023.

“The bank is also projecting that the manufacturing sector will grow by around 2.1% this year before experiencing a decline in output of about 1.1% next year. Output in the construction sector is forecast to fall by 1.0% next year, following expected growth of about 3.0% this year.

“With less reliance on consumer spending, the information & communication and professional, scientific & technical services sectors are expected to experience the strongest rates of jobs growth next year with annual employment projected to rise by 1.3% and 1% respectively in 2023."

While there is always uncertainty around economic forecasts, Danske Bank said the extent of the risks and uncertainties around these projections is considered to be more elevated than is normally the case.

Mr Lambe said: “One of the risks that could impact the economy going forward is persistent inflation. Inflation in the UK is at a multi-decade high and while we think it will peak in the final quarter of 2022, the decline back towards its 2% target is likely to be gradual. We are projecting that inflation will average around 7.5% in 2023 but if it were to decline more slowly than anticipated and run higher than forecast, inflation has the potential to constrain economic activity even further.”