Businesses optimistic about what lies ahead in New Year
With Christmas just a few days away, it seems almost inappropriate to be talking economics. But economics will come up around a few Christmas tables this year, as emotive subjects such as Brexit, Trump, migration, pay and the cost of home heating oil are all lively subjects to discuss over a glass of sherry.
And so how do we reflect on 2016? The economy is stronger towards the end of the year than at the start. More people are in work (though much of the employment is self-employed or part-time), less are unemployment, we are producing more output and real incomes have, on the whole, risen.
Given the shocks along the way, this is perhaps a more bullish position than might have been expected, but is this merely the calm before the storm?
Firms are resilient. There are many world-class businesses getting on with things and they will continue to do so whatever is thrown at them. The existence of talented businesses and gifted people always leads me to a relatively half-full view of the economy. Last week I was fortunate to be presenting at an EY event at the Merchant in Belfast and live polling on the day asked firms how they felt about the year ahead.
The results were extremely encouraging:
48% somewhat optimistic
32% somewhat worried
8% very optimistic
0% very pessimistic
Perhaps even more surprising was that after the talk 58% of the audience felt somewhat optimistic. An economist cheering people up, it must be the holiday season!
Firms were expecting a slower economy in 2017, around 50% projecting between 1 and 2% growth, but just 8% felt a recession was coming. Of course, anyone in business has an inherent desire to feel upbeat and these sorts of questions have a built in bias, but nevertheless it's a further indication of business resilience.
However, it is impossible to imagine that there will not be turbulent times ahead with all sorts of bumps along the way.
The decisions taken on migration policy and how the practicalities of the border are resolved are critical issues that could, if handled badly, materially damage the outlook.
My number one risk for 2017 remains inflation rising sharply, sparking fears over falling incomes, encouraging widespread unease in public sector workers over pay and maybe even an interest rate rise, particularly as America has moved again to increase the FED rate.
The risk of a recession, or at least falling levels of employment in 2017, sadly, cannot be discounted.
At the same EY event, when asked what firm's critical issue for 2017 was, the results were also very revealing:
41% talent retention
22% cost reduction
18% talent acquisition
18% acquiring business in new markets
Talent coming out top is no surprise, with unemployment low (claimant count 3.1% compared to 2.1% at the pre-recession boom) and plenty of survey data during the year highlighting skills shortages, there is no doubt that getting the right people and retaining them is corporate priority number one for many firms.
With uncertainty over migration policy and concerns over the supply of skills with unresolved funding pressures in higher education, this is a stark warning. 'Insufficient talent will mean insufficient growth', a message not to lose sight next year.
Looking to 2017, what should be on the wishlist?
The rise of Trump, the dissatisfaction of voters with Europe and the seemingly growing dissatisfaction with the establishment means the focus must be on improving what ultimately makes regions successful and prosperous.
I was fortunate to be in Harvard with my Business School colleague Dr Darryl Cummins two weeks ago, and we were hearing from Professor Michael Porter and his thoughts on the divisiveness of the US political system.
His remarks that no decisions are ever made due to nature of the system really resonated.
The need to improve US infrastructure has been known for decades and still it holds them back.
Could the same be the case closer to home? The UK knows its telecoms and transport infrastructure are far from world-leading and still there is little or very slow progress on high-speed rail or air capacity in the South East.
For Northern Ireland, there are things holding back competitiveness, low productivity levels, poor educational outcomes at the lower end, rising levels of sickness, increased congestion and underdeveloped infrastructure, all of which are well known.
The short-term choppiness of the next year or two will need a response, but the real challenge is to keep the focus on the long-term and making Northern Ireland a competitive economy.
Corporation tax reduction is a big policy change, but what else is on the cards to tackle those competitiveness barriers and obstacles?
The forthcoming Economic Strategy should give clear line of sight on the policy direction, but ultimately, as Porter says, "It is firms that make economies successful, as they raise the revenue we then spend".
To end on a lighter note as it is Christmas, to test the voting software at the EY event, we asked the audience their favourite Christmas movie.
It's a Wonderful Life narrowly beat Elf in the polling (Die Hard trailing far behind!). So businesses are both optimistic and have taste! Happy Christmas.