There are warning signs ahead... even if 2017 was better than we expected
The year 2017 was undoubtedly a better year for the economy than many had predicted. A wide range of indicators improved during the 12 months, including private sector employment (now at a record high), construction activity, and both tourism and trade.
However, many other indicators declined, and there are also some clear warning signs that the economy will begin to slow down this year.
Here is a flavour of some of the key trends of 2017 and what we can expect in 2018.
Geopolitics: At a macro level, geopolitics will be one to watch this year and will impact on many aspects of the economy. In addition to what's happening with North Korea - "my button is bigger than your button" - there is also the political situation in Iran. Unrest and instability aren't good for the economy, so we'll be watching closely what happens with these two issues as well as other geopolitical developments.
Public finances: NI has entered the new year with public spending already dominating the headlines in the form of pressures in the NHS, and this could well be one of the key themes of 2018, as the cuts over recent years begin to really bite. This will only become a bigger story. We have already heard much about overspending in education, and we should expect more news in relation to the two biggest spending departments - education and health.
Trade: 2017 was characterised by sterling getting weaker against a range of currencies, which provided a boost to NI's exporters. Indeed, a number of exporters reported record profits. We also saw some areas of manufacturing activity at its highest ever levels, including manufacturers of metal products and pharmaceuticals. Linked to this higher level of trade, NI's ports have been busier than ever. We should expect these trends to continue in 2018.
Retail: The sector has had some major headwinds and tailwinds. On the positive side, retailers, particularly in border areas, have benefited from the exchange rate, making shopping this side of the border very attractive to consumers from the Republic. On the other hand, consumers in NI have been squeezed by rising inflation and subdued wage growth, impacting on consumer spending.
In addition to impacting on the retail sector, this has also been evident in new car sales which have fallen at their fastest rate in six years. The squeezed consumer will become more of a theme in 2018. We will also likely see one or two moves by the Bank of England in relation to interest rates.
Tourism: It's not just shoppers crossing the border to benefit from the exchange rate, tourists have too - and not just from the Republic. Tourism has posted record highs ranging from visitor numbers to cruise ship arrivals. As a result, the hotel and hospitality sectors have been thriving.
Meanwhile, NI was Airbnb's "fastest growing" UK visitor destination in 2017. Not surprisingly, the accommodation and food services sector (hotel and hospitality) saw the largest increase in employment of any sector.
The buoyant tourism sector is also largely responsible for Belfast's crane-cluttered skyline, with construction benefiting from the increased demand from overseas visitors for hotel accommodation. We will probably see more record numbers on this front in the year ahead.
Construction: Other areas where construction activity has been taking place include offices, student accommodation and infrastructure with, for instance, the long overdue A6 road upgrade.
There has also been a much-needed pick-up in house building with housing starts at their highest levels in seven years. However, supply constraints remain, which are acting to push up prices. New build properties have seen prices rise 18.5% over the year to Q3 2017. Employment has risen in line with activity, however the number of people employed in NI's construction sector is still only three-quarters of what it was a decade ago.
Labour market: The labour market has seen an overall improvement. Private sector employment continues to rise and set fresh record highs. And the unemployment rate has fallen to a nine-and-a-half year low. IT was the fastest growing sector of the jobs market in 2017, with the number of jobs rising by around eight percent. Manufacturing has also posted strong jobs growth over the past year, with employment now back to where it was a decade ago.
This is despite a number of high profile job loss announcements, most notably the closure of the JTI factory in Ballymena.
But the unemployment rate has actually been falling for the wrong reasons. Rather than people coming off the unemployment register and into employment, we are actually seeing people coming off the unemployment register and into the economically inactive category. This includes people who are long-term sick, students and family carers, for instance. In 2017, we created more economically inactive people than we did jobs. In 2018, we need a big focus on making the inactive active and on boosting our productivity.
Overall, the economy moves into 2018 with some momentum after a better than expected past year. But looking at the projections in the recent UK Budget, it is clear that the outlook for the economy has been downgraded significantly and anything other than an economic slowdown in 2018 would be a considerable surprise.
The big themes in the year ahead are likely to include political uncertainty, the ongoing rise of Belfast and Northern Ireland as a visitor destination, and the unfolding story of what Brexit will mean for the border on the island of Ireland.