Belfast Telegraph

Brexit should not be allowed to overshadow the good news of 2018

Economy Watch

Tourism sites such as the Dark Hedges which featured in Game of Thrones have helped drive NI’s economic success
Tourism sites such as the Dark Hedges which featured in Game of Thrones have helped drive NI’s economic success

By Jordan Buchanan, economist at the UU economic policy centre

The new year has begun in a similar fashion to how 2018 finished - with political turmoil, locally and nationally, and without any clear progress in the Brexit negotiations. This will continue to dominate the economic narrative in the coming months, but it's important to reflect on the good news and the positive performance of the local economy in recent years.

In my capacity as an economic forecaster, it is natural to become fixated on understanding what the economy will look like next year or in 10 years' time.

My realisation - not least in the light of forecasting with so many unknowns due to Brexit - is that building models is as much about understanding relationships and observing patterns as it is about divining the future.

Economies across the world will always face their respective challenges, whether currency crises, trade wars, debt levels or, in the UK's case, our future trading relationship with the EU.

Economists naturally tend to focus on the downside risks and perhaps this is a requirement of our role to inform the relevant stakeholders of future threats which have the potential to destabilise economic growth in the longer term.

However, it is also important to commend and celebrate the successes of the economy we live and work in and use these to provide a solid foundation as we move forward in such uncertain times.

Last year was a particularly encouraging year from an economic perspective for Northern Ireland. The labour market continued to defy expectations, creating 13,000 new jobs alongside unemployment falling by over 8,000.

Sign In

Taking a longer-term view, the economy has experienced seven consecutive years of job creation and to date there are more people in work than there were at peak levels in 2008 before the financial crash. The booming labour market has led to workers receiving a well-earned pay rise after a long period of limited growth in earnings.

Indeed, a typical full-time worker received almost £500 of additional income last year (annual after inflation) compared to only £200 across the rest of the UK. Coupled alongside inflation at close to 2%, consumers should begin to feel that their money goes that little bit further, particularly as weaker oil prices feeds through to lower prices at the pumps.

Northern Ireland's foreign direct investment (FDI) and tourism industries have expanded rapidly in recent years and are key components of success in the local economy. The favourable combination of skilled workers, competitive cost base and attractive tax regime makes Northern Ireland a prime location for investment.

To date, over 900 international companies have invested in Northern Ireland across a range of sectors from industrial machinery to software and IT services. Impressively, Belfast is deemed the number-one destination globally for cyber-security projects.

On the housing front, local homeowners will have enjoyed recent house price appreciation. House prices are estimated to have grown at a strong annual rate of almost 5%, exceeding the UK as a whole where growth has been closer to 3% -largely driven by flatlining prices in the London/South East England areas.

A combination of these factors has contributed to the economy growing steadily since 2010, with the most recent economic growth figure at a healthy annual rate of 1.7%, according to estimates published last month by the Office for National Statistics.

The encouraging economic performance in recent years is a credit to employers who have shown their adaptability and resilience while operating in an increasingly difficult economic environment.

Looking forward - and returning to Brexit gloom - the next few months will be critical in determining the medium to long-term growth prospects for the UK and NI economies. Following Theresa May's overwhelming defeat in Parliament on the Withdrawal Agreement and despite the survival of the vote of no confidence, this will force a radical shift in the approach to negotiations. I share the view across the business community and many fellow commentators that avoiding a no-deal will be of utmost importance for Northern Ireland.

I still believe, despite the looming deadline, that common sense will prevail and there will be a deal with the EU, giving businesses much-needed clarity. Alternatively it is increasingly plausible that Article 50 may be extended beyond March 29 to give more time to work out an agreement.

However, irrespective of the outcome of the EU negotiations, legacy/structural issues of high inactivity and low productivity remain NI's most challenging problems in a UK regional context. Addressing these long-standing issues will be critical if NI is to improve its economic performance and catch up with other UK regions.

It is important to remember that any policy decisions require ministers and without an Executive, the economy will bear the cost in the long run. The latest Chamber of Commerce/BDO business survey suggests that 79% of members believe the lack of an Executive will have a negative impact on our economy this year.

Northern Ireland is being put at a disadvantage compared to other UK regions and the Republic of Ireland. If ever there is a time for political leadership, it is now.

Last year surprised on the upside for me. I hope this time next year I can reflect on 2019's performance with the same level of optimism.

Belfast Telegraph