All we know is that 2017 brings much uncertainty
The year is finally over. We can all breathe a sigh of relief and look forward, can’t we? Remember how we entered 2016, almost certain that by the end of it we would have voted to stay in the EU and that we would be considering what a Clinton presidency would bring.
Now we turn into 2017 in a state of major uncertainty at home and abroad. We don’t even have an Olympics or major football tournament to distract us.
Forecasting is a very difficult skill (or dark art) at the best of times so I have a lot of sympathy for the forecasters that are trying put a figure to how the economy will perform in this coming year. There is a consensus emerging that Northern Ireland will avoid a recession.
So what lies ahead?
A tough budget
One of the earliest tasks in 2017 will be for Finance Minister Mairtin O Muilleoir to present a budget to the Assembly. This is an unenviable task, made all the more difficult by the Renewable Heat Incentive scandal that dominated political discourse here for towards the end of 2016. There are some crucial decisions that need to made, and funding found, if Northern Ireland is to realise any economic growth ambitions. Take the York Street Interchange. Belfast, which don’t forget drives the whole NI economy, has highly ambitious aims for what it would like to achieve by 2035. I can’t think of any successful outcome for the city that doesn’t include implementing the preferred option at York Street.
An education crisis? Sticking with the budget
We all tend to agree about the importance of a quality education for societal and economic gain. Ask any MLA what marks Northern Ireland out as an attractive place to invest and they will tell you that it is the quality of our schools and skills pipeline. Really? So why are we facing a situation where more than half our schools will be running a deficit? In figures placed in the NI Assembly library just before Christmas, the Education Minister outlined the projections for school surplus/deficit. As it stands, one third of our schools are in deficit positions. The total deficit of these schools is £34m. This is projected to increase to £77m across 573 schools by 2019. What quality of education can we afford?
From planning to delivery
The recent spate of elections has prompted the development of a swathe of policy documents and strategies. Local councils have been consulting on their community plans, Stormont has a new Programme for Government, and a refreshed Economic Strategy is imminent. It is good to plan but 2017 has to mark a shift in emphasis from planning to delivery.
Cost of living pressures
The Bank of England is firmly of the view that inflation will tick up in 2017. The extent to which inflation takes hold and impacts on consumer confidence is important to monitor. While consumers were remarkably resilient in 2016 some recent indicators, such as NI car sales data, suggest consumers are taking a more cautious view into 2017. Inflation moves may also start to see more demands for pay rises in 2017. Pay restraint has been a strong feature of the job market in recent years but there were signs in 2016 that wages are starting to increase again. We may start to see more industrial action over pay this coming year?
The decline in sterling has already led to an increase in cross border shopping from the Republic to NI. Sterling is in a period of flux and susceptible to further swings as Brexit negotiations begin and the terms firm up. A weaker sterling in 2017 could provide our retailers with a boost to footfall and our exporters with a competitive edge in market but across the whole economy, a weaker sterling pushes the costs of buying in goods and services up.
Trump’s early choices
All eyes will be on President Trump to see how his presidency might play out for trade and inward investment. By Spring 2017, President Trump will be completing his first 100 days in office. By then, the tone of the presidency, and economic implications should be clearer — will we get the Trump of late night Twitter rants and unprecedented campaign rhetoric or will a more measured ‘presidential’ tone emerge? The extent to which he follows through on isolationist tendencies will be an important policy to watch for.
European elections and Brexit clarity
There are a series of elections set to take place across Europe in 2017. The outcome of these will point towards the future direction of EU socio-economic policy. 2017 can only bring greater clarity on Brexit. As negotiations begin in earnest, how business sentiment and FDI flows react will have a significant bearing on economic performance. Will businesses delay decisions and spend 2017 in a ‘wait and see’ phase?
A different view: quite a few people have suggested to me since Brexit that a reduction of corporation tax to 12.5% is no longer worth pursuing. I tend to disagree, surely it is more important now, as NI tries to convince investors to come here. However, it has got me thinking…is there another option on corporation tax that would unleash a wave of entrepreneurship? How about a corporation tax exemption for businesses under three years old? Or, how about a full tax rebate on the income tax you paid in the year before starting a business? That’s not so much a predication for 2017, more the naive hope of an optimist. Who’s with me?