A modest return to growth next year. after faint signs of recovery so far, says Richard Ramsay in the Ulster Bank’s quarterly review. These signs were noted at the InterTradeIreland conference in Dublin in June, as different strategies begin to bite on the economies south and north. In some ways NI with its dominant public sector has fared better than the GB average. But recovery is likely to slower in the region than in GB. Extracts from Ramsay’s crisp and confident review below the fold.
In many respects, returning to growth is the easy part, and it does not in itself prompt us to pop the champagne corks. The biggest challenge is to recover the significant amount of output lost during the recession and this will be an extremely difficult challenge. As Mervyn King highlighted this week, levels of activity and output are more important than the rate of growth.
Looking at this from an NI perspective, NIs manufacturing output is now at levels last seen 6 years ago. While manufacturing industry will record output growth later this year, it will take several years to claw back the lost output. Similarly, output within NIs services sectors is back to 2005 levels. This levelling down in economic activity reduces the demand for labour and as a consequence the number of jobs is returning to 2006 levels.
The rate of unemployment growth has clearly eased and our view is that more than two thirds of the total job losses expected during the recession have already happened
The pace of job losses continues to ease but unemployment is set to rise well into 2010
Unemployment benefit claimants set to rise to 65,000 by mid-2010 currently 51,000
NIs headline unemployment rate ILO will remain below the UK and RoI but is set to rise above 8% in late 2009 and average 9% in 2010
Rising youth unemployment and spiralling levels of economic inactivity are major concerns
And next up.. the Public expenditure crunch draws nearer. Ramsay goes on:
It is interesting to note that the Programme for Government set as one of its economy objectives the goal of increasing NI’s employment rate from 70% to 75% of the working age population by 2020. This was an ambitious goal at the outset. However, it has been made even more challenging given that the employment rate has fallen by a hefty 4.5 percentage points since the launch of the PfG and is currently 65.6%. Over the last year this represents the sharpest fall of any of the UK regions. This once again highlights that the economic landscape in which targets were set has fundamentally changed. In terms of NI’s employment rate target, it will take the NI economy a number of years to get back to its PfG starting position before beginning to make the progress originally planned. The rising number of unemployed, combined with future tax rises, will lead to consumers reining in expenditure and this will present very significant challenges for consumer sensitive sectors of the services industry.
The service sector is already being hit hard, with NI having witnessed its sharpest fall in service sector jobs on record.
As NIs economic conditions return to the levels witnessed a few years ago, there is one positive angle to this. NIs house prices have experienced a huge house price correction and are likely to stabilise around 2005 prices. The return to more affordable housing will be welcomed particularly by those first-time buyers who thought they had missed out on the dream of owning their own home in 2007.
Clearly, NI like other economies will face a long slow road to recovery. It is our
view that NIs sustainable growth rate will be 2% per annum on average which compares with an average of just over 3% over the period 1990-2007. Furthermore, we expect NIs growth rate will be below the UK rate.