Belfast Telegraph

Economy Watch: Bright spots among the hardest conditions we've seen since last recession


Brexit is proving to be a constant worry
Brexit is proving to be a constant worry

By Neil Gibson, chief economist of EY Ireland

September is always a very busy month. People are back from their holidays, the roads are busier again with school traffic and, in the economic world, there is a flurry of new data and a marked pick-up in the number of events and conferences.

Attention usually turns to both the UK and Irish Budgets and, in the UK, the party conference season begins.

This year is no different and the addition of the Brexit turmoil has only added to the frenzy.

Our own Economic Eye report was released last week.

Our forecasts for the possible out-turn of the island under a no-deal forecast garnered the most attention, understandably, as they paint a challenging picture.

As I and others have discussed many times in this column, all forecasts of this kind need to be treated with considerable caution. There is no precedent for Brexit and the reactions of governments, business and consumers are impossible to predict with certainty.

It is also important to point out that a no-deal outcome may not be a permanent outcome.

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If the economic damage was severe, there would be increased motivation to reach new deals or reduce tariffs. The 'static' no-deal modelled in most reports (including our own) is unlikely to last longer term.

Lack of preparedness is understandable

How can firms possibly respond to this unprecedented uncertainty? Much has been made of the lack of preparedness and the figures in the latest IntertradeIreland Business Monitor were alarming. 89% of firms said they had not made any preparations for Brexit.

Worryingly, across 10 separate categories of potential Brexit impact, roughly 40% of respondents felt it was not applicable to them. This is very unlikely to be true. Almost every firm will be impacted by Brexit, either through currency, supply chains, customer incomes or government responses.

Even if a firm is not subject to tariffs or is not an exporter or importer, it does not preclude them from a Brexit effect. Much has been made of this lack of preparedness, but it is fully understandable.

There have been many 'false deadlines'; October 31 may well prove to be another, and detailed planning is complex and costly. Many firms are very busy - the record employment levels in Northern Ireland confirm this - and, as such, they may well have more pressing issues to address.

However, firms should be doing at least light-touch planning: it is relatively low cost and potentially very high impact. Businesses can determine their currency exposure, their dependence on individual customers and their possible tariff vulnerability relatively quickly. There are more support schemes available from InterTradeIreland and others to assist firms.

Challenging conditions - but success is still easy to identify

Many firms are still incredibly busy. This is worth reflecting on when considering the challenging headline economic data and press. It is true that global conditions are as challenging as they have been for a decade, Brexit is a constant worry and Government debt is still high on a per person basis in Ireland and the UK.

However, many firms report hiring difficulties and full order books. EY's own client base remains relatively positive (56% of senior staff report their clients as feeling positive).

The demands across our services remain robust and most clients are still hiring.

I had the privilege of presenting at Belfast Harbour's first Annual Stakeholder Event and the positivity around its new developments and take-up of office space was incredibly encouraging. There is still plenty of good news to mull over on the school run.

Job market may have levelled off

Our forecasts predict a levelling off, indeed a slight contraction, in the overall labour market (12,000 jobs forecast over the next five years compared to 50,000 over the last five), but you have to look rather carefully to find evidence of this among firms.

Several surveys are pointing towards a slowing in recruitment levels and the unemployment data suggests that, outside of Belfast, job losses are occurring, but it is far from universal.

This is a further reminder of one of the themes of the Economic Eye report - disruption drives opportunity. As one firm becomes uncompetitive, so another steps in. Depreciation of sterling in recent weeks has boosted NI exporters and, even if tariffs do become a reality among the upheaval, there will be individual businesses that will flourish.

I wrote last year that I expected the labour market to level off and was proved wrong - I hope this happens again but there are plenty of factors working to slow the rate of job growth.

Paused Government and commercial investment, accelerating use of technology, transformation of retailing and a tight labour market limiting availability are just a few of the most prominent.

It was unusual to have people remark on my gloomier outlook at our forecast events.

I am frequently accused of having a far too upbeat assessment of NI and its outlook but, on balance, this is a more difficult trading environment than we have seen since the last recession.

It is incredible to think that, by the time I write my next Belfast Telegraph article, the UK may have left the EU.

Then again, it may not.

Belfast Telegraph