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Why is the Northern Ireland economy slow to recover?

By John Simpson

In the later months of 2016, the output of the Northern Ireland economy was 7% below the peak value recorded in early 2007, just before the recent recession began to take effect. In sharp contrast, late in 2016, output for the UK was 8% higher than the pre-recession peak. As the Government statisticians commented: "The UK has had a shorter downturn with a faster recovery".

The contrast, to Northern Ireland's disadvantage, is too large simply to register the difference and move on. In this nine-year period, the local economy has lagged the UK performance in a strikingly unwelcome way. For Government, business, employers and employees, there is a need to ask why.

What must be disentangled are reasons which point to unusual circumstances that are one-off distortions and also for other factors which show continuing economic weaknesses.

Two factors have tended to overstate the underperformance of the local economy.

First, the big reduction in the number of jobs in the public sector as a result of the 'early leaver' voluntary exit scheme in 2015-16 means that statistically the output of the public sector has reduced. Lower employment is taken as meaning lower output: if official services were maintained then it is a misleading statement. However, this perverse effect would affect less than 1% in the overall index.

Second, the Northern Ireland starting point for the recession might be regarded as an unusually high level of output given the features that helpfully influenced the economy in 2007-8.

Even discounting these two features, there remains an unwelcome difference for Northern Ireland when compared to the UK performance. The same conclusion can be drawn if the comparison is between Northern Ireland and the Republic of Ireland which has shown a notable recovery from its recession.

The recent comparative developments have not been a one-off distortion. Although there have been short periods of better local growth, the long-term trend shows no satisfactory catch-up.

The widening under-performance gap for the NI economy shows that the Northern Ireland labour market has been better at maintaining increased levels of employment than at boosting earnings and output to close the gap with GB. Employment numbers have varied from year to year and, in general, have (proportionately) followed the national trends. In contrast, although official policies have emphasised training for higher value-added jobs, average earnings have stayed close to 80% of the UK comparator. The Northern Ireland skills mix may have improved slightly but not by enough to sufficiently influence productivity and profitability and hence to improve relative earnings.

Just two weeks ago, Economy Minister Simon Hamilton published 'Economy 2030', a consultation on an Industrial Strategy for Northern Ireland. He offers a wide-ranging review discussing how the competitiveness of the local economy might be increased and, in parallel, seeks sources to generate inclusive growth for the economy.

Many of the individual issues raised in the consultation merit further detailed scrutiny. Priorities are identified which fall within five pillars: accelerating innovation and research; enhancing education, skills and employability; driving inclusive sustainable growth; succeeding in global markets; and building the best economic infrastructure. Then within each of the pillars a specific of priorities is listed: 26 in total.

The minister has set an extensive agenda. At first sight, it is an impressive and comprehensive review. Less helpfully, the large number of priorities is forbidding and dilutes the prospect of targeted selectivity. With so many priorities, the economic inheritance is inadequate and the necessary range of actions looks forbidding.

The minister and his officials are less than helpful in avoiding selected gradations for policy developments. Not everything in the agenda is broken: some deficiencies are more manageable than others. The consultation only serves a useful purpose if it leads to sequenced, costed and prioritised series of actions.

Unhappily, that sets a challenge for more follow-up comments.

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