Belfast Telegraph

Political instability is causing damage to our economy

By John Simpson

The Northern Ireland economy is recovering … but very slowly. The number of people in jobs is increasing, but much more slowly than in Great Britain. Output is, at best, nearly static. Output per person has been falling. More starkly, productivity is falling.

In a comparison with the UK and the Irish economies, the Northern Ireland economy is lagging behind. Deep-seated differences are emerging and should be acknowledged and examined.

The emerging gap sits alongside the positive achievements recorded by Invest NI in 2014-15. There is an unhappy contrast between the improved number of announcements of the arrival of new enterprises and additional investment by businesses and the less optimistic assessment of overall economic activity.

The critical evidence emerges in comparisons of the changes in employment in Northern Ireland when compared to the UK. It also is striking when the measures of economic activity (GDP or its equivalent) are considered.

There are statistical traps in making these macro-comparisons. Where should the starting point be in asking how the economy in 2015 compares with an earlier date? The overall results can be influenced by choosing a high or a low starting point. Also, the choice should avoid any bias from an untypical base year.

With a pragmatic apology, based as much on available statistics as scientific principles, comparisons have been made for the recent 10-year period, 2005 to 2015. And 2005 can be regarded as the year before the financial crisis, including the housing market bubble, and before the early signs of boom and then bust emerged.

In Northern Ireland in 2005, there were just over 700,000 people in employment. The numbers were increasing and reached a peak in late 2007 at over 733,000 before a four-year fall in the recession to bottom-out at 691,000 in 2011. Now, in 2015, employment numbers are increasing and have recovered but only to 721,000 people.

In this 10-year period, employment increased by just over 2%.

That employment increase is welcome but, unfortunately, compares badly with the UK where employment in 2015 is over 7% higher than in 2005.

The different experiences in the labour market are even more pronounced when the figures are disaggregated for the public and private sectors.

Public sector employment in the UK in the 10 years has fallen by 12% (or nearly 700,000 jobs). In Northern Ireland, public sector employment has fallen by 5% (or nearly 11,000 jobs).

Changes in private sector employment are more of a concern. Private sector employment in the UK, in the same period, rose by nearly 13%. In Northern Ireland, the comparable change was an increase of just 5%.

Simply in terms of keeping up with the UK, Northern Ireland now in 2015 has 38,000 fewer people in private sector jobs than would have been a comparable outcome.

Perhaps the most critical consequence of the way in which the regional economy has performed, alongside the poorer employment figures, is the widening of the gap in terms of overall measures of economic performance: GDP or the local composite index of economic activity.

In the last 10 years, economic activity in NI has decreased by 5% compared to late 2005. After a fall in output from 2005 to 2010, in the last four years, local activity has been nearly static. In Northern Ireland we have not made any appreciable recovery to make up the output and incomes lost because of the recession. In the UK, output and incomes are now higher than the pre-recession peak.

In simple terms, the Northern Ireland performance suggests that output has decreased while employment has edged upwards. This equation points to over four years of negative productivity changes. Jobs have been retained, especially in the services sectors, well ahead of any productivity gains.

Why is this happening? A worrying possibility is that underlying political instability is proving more damaging than can be measured and this is not sufficiently acknowledged.

Belfast Telegraph


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