Belfast Telegraph

Warning over impact of public spending crunch

The recession is easing and the property downturn is running out of steam, but a nasty public spending crunch is just around the corner, a leading economist warned Northern Ireland today.

At least £200 million a year in public expenditure savings need to be made in the province from 2011 as its share of Westminster's slashing of spending according to the Ulster Bank.

Northern Ireland needs to reinvent itself as an economy that is far less dependent on public expenditure, the bank's Richard Ramsey said in his quarterly economic review.

On the plus side respected indicators such as the UK PMIs (Purchase Managers Index) suggested the pace of contraction in the economy was slowing and, in global terms, levels of trade were picking up, he said.

"It is our belief that the very worst of the downturn is behind us, and, whilst the Northern Ireland economy will experience a deep contraction of around four per cent this year, we expect it to return to modest growth in 2010," said Mr Ramsey.

The region's economic performance this year will be broadly consistent with the UK as a whole and the Eurozone, he added, but said the Republic would experience "a severe economic contraction" of around eight per cent.

And while the pace of decline in property-related sectors has slowed, sectors such as retail and tourism had been increasingly impacted by falling consumer spending.

The influx of shoppers across the border from the Irish Republic, although very welcome, hadn't been enough to offset Northern Ireland's consumer downturn, he said.

At the same time the exchange rate environment hadn't insulated the tourism sector from falling tourism demand.

On the manufacturing front, while the food sector had performed well, engineering had been hit hard by plummeting global demand, said Mr Ramsey.

But it was what he called the inevitable public expenditure crunch which would put the biggest pressure on the Northern Ireland economy in the years ahead and would moderate growth in 2010 and beyond.

"Northern Ireland benefits from an additional £2,000 per citizen in public expenditure compared to the UK average and is therefore much more vulnerable to the forthcoming slashing of public expenditure than other UK regions.

"With £9 billion per annum in efficiency savings required by the UK government, Northern Ireland will be expected to make its share of cuts.

"We estimate that Northern Ireland will have to make at least £200 million per annum in efficiency savings from 2011."

Against the more austere public expenditure environment the Stormont Executive needs to accelerate and deepen public sector reform, he said.

"There is now increased urgency to reduce expenditure and raise revenues, and tough decisions have to be made.

"Northern Ireland also needs to reinvent itself as an economy that is much less dependent on public expenditure and needs a new regional economic strategy designed to do so," said Mr Ramsey.

Looking at the labour market he said he expected unemployment to rise about 9% by the end of 2009, and average 9% in 2010 - but fall back moderately in the second half of next year as the economic recovery takes a hold.

Belfast Telegraph