Policy makers must strike a balance between financial austerity and sustaining growth if Northern Ireland’s delicate economy is to be nursed back to health, one of the leading banks said.
Northern Bank’s quarterly sectoral forecast predicted the economy would grow by 1.3% this year after increasing its forecast by 0.1% — but it warned the going would not be easy as fragile recovery translated into job losses and decline in some sectors.
Angela McGowan, the bank’s chief economist, predicted the business services, retail and manufacturing sectors would grow — but that the financial, public administration and utilities sectors would shrink.
The business services sector could grow by 2.7%, retail by 2.3% and manufacturing by 1.35%, Ms McGowan said, the three sectors together accounting for one third of economic output.
The financial sector was looking less robust, with the bank saying it could face ‘modest job losses’.
“Our latest forecasts suggest that the local economy should not slip back into recession in 2010 if policy makers manage the fine line between financial austerity and sustaining economic growth.”
Although Northern Ireland manufacturing would grow by 0.9% in the first quarter, employment in manufacturing would contract in the longer-term |due to reliance on construction, she said.
Retail would expand modestly from the middle of the year though the sector experienced a disappointing start to the year.
Although growth would remain positive, there was no room for complacency, as Ms McGowan said: “While the most recent data suggests that the local economy should not slip back into recessionary territory this year, there are downside risks to growth coming from a number of areas.
“Firstly, whilst consumer confidence has improved dramatically over the year, the impact of withdrawing the lower VAT rate may have adverse consequences for consumption. Secondly, the timing of any public sector cuts will also determine growth levels and forecasts show that this sector will contract by 0.65% in 2010.”
A weak recovery would mean job losses until the middle of the year, she said.