Brexit fears lead to Northern Ireland business entering cycle of economic decline
Brexit uncertainty has led to sharper falls in output and new orders in Northern Ireland, signalling a deepening downturn in the private sector, the latest health check on the economy here has found.
Ulster Bank's Purchasing Managers' Index (PMI) revealed that output fell for the fourth consecutive month during June, representing the most pronounced decline of all 12 UK regions covered.
Ulster Bank's chief economist Richard Ramsey said: "After six years of growth, it appears that the economic cycle has turned."
The monthly survey is based on responses from 200 companies across Northern Ireland's manufacturing, services, retail and construction sectors.
Steep declines were reported in construction, retail and manufacturing. Companies cited Brexit uncertainty as the main factor behind a sharp decline in new orders.
"In the early part of 2019, it was difficult to get a true handle on where the Northern Ireland private sector was," said Mr Ramsey. "We had a range of manufacturing firms stockpiling due to Brexit, which in some respects skewed the output figures.
"Now that the period of intensive stockpiling has passed, we are perhaps getting a truer reflection of the real state of play. And what we are now seeing is that all of the PMI's key indicators declined over the first half of the year, including output, employment, new orders and exports."
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The survey, carried out by IHS Markit for Ulster Bank, found that employment decreased for the sixth successive month in June. New business decreased for the fifth successive month, and to the greatest extent in seven years. New export orders also fared badly, falling at the steepest rate since August 2011.
"The severity or otherwise of that downturn will depend on a range of factors," continued Mr Ramsey.
"The kind of Brexit that we see will of course be a major factor. But what is in no doubt is that the private sector overall is currently in a weaker state.
"Of particular concern are new orders and exports. Both domestic and overseas order books are contracting at a rapid rate, which suggests that activity will be subdued in the coming months.
"The manufacturing sector appears particularly weak at present, with output falling at its fastest pace in June for more than a decade. However, all sectors were in decline in June, with construction and retail also seeing very marked declines in activity."
The economist said Northern Ireland is not alone in reporting a marked deterioration in business conditions during June. Manufacturing and construction activity slumped UK-wide last month, while the services sector slowed to near stagnation.
The impact of the US and Chinese trade war is also being felt worldwide.
Mr Ramsey said Northern Ireland's decline was still more pronounced than the rest of the UK,
"However, it needs to be remembered that the Northern Ireland labour market is cooling from record levels, and indeed many firms who were having difficulty recruiting may not see that as entirely a bad thing," he added.
"The decline in the employment figures in the latest PMI is therefore not concerning at this stage. The challenge will be whether that trend continues into the six and 12 months ahead."