Belfast Telegraph

We're still in the recession's grip, but the recovery signs are there

By John Simpson

The number of jobs in the private sector in Northern Ireland began to increase slowly in the second half of 2012.

The recession is still very much in evidence but some sectors have bottomed out.

In 2008, Northern Ireland's private sector enjoyed the peak level of employment with 515,000 jobs. Since then, employment has decreased to 477,000 in early 2012, a loss of 38,000 private sector jobs, or 7%. Since then, in mid-2012 the numbers have crept up by nearly 2,000 people.

Recovery in the private sector is welcome news. To put this in context, a comparison with the trends in the private sector in the UK shows that the recession in Northern Ireland has been much deeper. Northern Ireland/UK comparisons have been usefully analysed in last week's new statistical evidence from the Northern Ireland Statistics and Research Agency.

In the UK, private sector employment, after the peak reached in 2008, fell by 4% in the next two years. That fall in employment in the private sector in the UK was reversed in 2010 and the loss has been completely recovered by late 2012. Late in 2012, private sector employment in UK was 1% higher than before the recession began to bite.

In Northern Ireland, private sector employment is 6% lower.

There is also a contrasting experience in the public sector. There are over 6,000 fewer jobs in the public sector in Northern Ireland now, than in early 2008, a fall of 2.7%. The change in the UK was a fall of 266,000 people in public sector jobs, more than 4.4%.

When only measured by job losses, Northern Ireland has had a recession that directly hit 5.6% of all employees and is much worse than the UK experience.

There have been contrasting experiences in critical sectors of the economy. In five recessionary years, ending in the third quarter of 2012, the key differences have been:

• Construction output down 35% (compared to 18% in Great Britain)

• Manufacturing output down 13% (UK down 12%)

• Private sector services down 9% (UK no change)

The much larger fall in construction work in the last five years stems from two separate trends. First, in common with other parts of the UK Government plans, capital spending has been cut. The local devolved capital budget has been cut on a comparable basis. There now seems to be a political reaction that the cuts have been too sharp, even though they were justified as part of the necessary reduction of the budget deficit.

Second, and uniquely to Northern Ireland, the construction industry was excessively expanded in 2004-2008, partly as a result of planning policy excesses, and as a consequence there was an unsustainable boom in house prices.

That house price bubble has left a huge overhang in the market and negative equity of about £2bn, or nearly 8% of annual personal incomes.

Manufacturing industry has experienced a broadly comparable rate of loss of output (and employment) to that in Great Britain. The anticipation is that any recovery in overall trading conditions, including a possible benefit from a small devaluation of sterling (provided that the adjustment does not erode overall confidence), will ripple into local businesses.

In addition to the collapse in construction work, the next most unwelcome effect of the recession has been a 9% fall in turnover in the services sector, whilst in Great Britain the turnover has been nearly stable. Two features stand out.

First, the distributive trades have generally kept up their level of activity, despite fears that consumer spending was falling. Second, and more disappointing, general business and financial services have taken a large fall – turnover is down by 40% in the last four years. This may represent a serious loss of long-run capacity.

What next for the recession? Overall, the private sector may begin to recover. Unhappily, the public sector is still facing restrictions on spending. Nevertheless, the bottom of the recession may have been reached.

Belfast Telegraph


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