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Economy watch: Just how different are the two economies on the island of Ireland?

 

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Dublin is a strikingly different sub-region in economic terms

Dublin is a strikingly different sub-region in economic terms

Dublin is a strikingly different sub-region in economic terms

I recently passed my one year anniversary as EY all-island chief economist. While no gold medals are awarded for such a milestone, it is a good time to reflect on how different (or not) the two economies are.

I am frequently asked how I am finding the role across the two economies, and whether they are 'chalk and cheese' as the headline data suggests? There is often some surprise when I remark that the economies have as many similarities as differences.

There is one obvious difference between the two - one is a region and the other a country. In economic terms, this is very significant. The economic debate in Ireland focuses on the deficit and the cost of public policy choices. There is a palpable debate focused on 'who pays?'

This is much less pronounced in Northern Ireland where there is no national deficit or a requirement to 'balance the books' in any long-term sense. This important distinction permeates public policy and economic development debates and materially impacts the nature of the chief economist role.

The differential in overall economic performance, both on a levels and growth basis, is often the starting point for any economic comparison. The differential is stark. Irish GDP per head is much higher than it is in Northern Ireland (and indeed the UK).

Even using the modified measure of national income (GNI ), the differential remains significant. Expressed per head, GNI is more than 10% higher than GDP per head in the UK and roughly 45% higher than GDP per head in NI.

NI's poor GDP growth and its underlying weak productivity has long been a focus of policy makers.

Part of this is structural, with NI having a more modestly sized private sector and a limited multinational and plc sector.

It is not surprising that with a higher GDP, the level of income in the Republic of Ireland is also higher than it is in NI.

Average salaries are 30-35% higher in the Republic. A further area of difference, which links to the region versus country distinction, is the extent to which the economy enjoys (or endures) economic cycles.

The more cushioned NI economy did not suffer anything like the scale of the economic crash that was endured in the Republic a decade ago, but equally it did not reach the same highs before or since.

The dampening effect of a relatively large public sector in NI is another example of difference. Interestingly this is always cited as a weakness, despite economies with a large public sector, such as a number in Scandinavia, often being cited as exemplars of success.

So far so different, but in other ways there is great similarity. Firstly employment rates are very similar. Unemployment is actually lower in NI despite the weaker GDP figures.

From a citizens' point of view it is arguably more important to have higher employment rates than high GDP, though of course the two are related. It is perhaps surprising how rarely the labour market features in compare and contrast exercises.

A major part of the role as chief economist is advising leading corporates north and south on economic matters, perhaps on outlooks, Brexit, wage inflation or exchange rates. This differs very little across the island. There are great, world-class businesses in both jurisdictions, thus the level of sophistication of analysis being carried out differs very little. The scale may be different, there are less firms in NI, but global quality evidently can flourish in diverse places.

Another way in which both economies are, sadly, similar is the variation in performance within each jurisdiction. Both economies have extremely strong sub-regions but also a number of areas suffering stubbornly high unemployment, labour market disengagement and under performance. The extremes in performance are arguably higher in the Republic where Dublin is a strikingly different sub-region, but both economies have found achieving more balanced growth extremely challenging.

Looking again at the public sector, is government spending in this area indeed a key differential? Certainly the public sector is a bigger proportion of the economy in NI than in the Republic. Some 24% of Irish employment is in public administration, health and education and in NI the figure is almost 30%. A differential, but perhaps less pronounced than many expect.

Spending comparisons are rather tricky due to a range of definitional issues. For example, Ireland incurs spending on national debt and central services (like the Treasury) which NI does not. But taking a subset of public services, namely education, health, justice, social protection (including benefits and pensions) agriculture and transport; spending is actually very similar on a per head basis at current exchange rates.

One obvious difference is that the Republic has a government and NI does not (at the time of writing). But the civil service machinery that runs the two economies has considerable similarities in expertise and competencies.

In economic policy terms there are clear parallels between the National Strategic Objectives in the Irish National Development Plan and the Strategic Outcomes in the Northern Ireland Draft Programme for Government. The health, justice and education sectors each warrant their own article, but unsurprisingly there areas of good and bad performance in both jurisdictions.

Press coverage depicts a significant degree of commonality with issues of cost, timeliness and performance in public service prevalent on either side of the border. A major difference, stemming from the lack of a NI government, is the extent to which policy decisions are being made that will impact the decade ahead.

Major infrastructure plans are coming to fruition in the Republic whereas NI, without an Executive, is making slower progress.

The issues that matter to people are also very similar indeed. As the OECD's 'How's Life' reports show, both the UK and Ireland place a premium on life satisfaction, health and education.

Income, perhaps surprisingly, is not top of the list and is markedly lower in the UK. It is however worth reflecting on how income is a pre-requisite for some of the other items towards the top of the list!

NI's often quoted 'happiness' levels remain an important feather in its cap, and certainly young workers in Dublin are much more anxious about housing costs and income pressures than their equivalents are in Belfast, just one more example of how the headline data does not tell us everything we need to know.

Working to help governments and firms across the island remains a privilege and many of the projects and asks for support are very similar.

There are clearly important differences across the two jurisdictions but the lesson, as so often in economics, is that the headline data does not tell the full story. Most firms, indeed most citizens, have similar aspirations for their businesses or for their life.

There are common challenges, including how to meet the rising cost of public service, how to spread growth more equitably and how to grow the economy whilst not diminishing citizens' quality of life.

The challenge for me, and others, is to spend more time thinking about how to tackle these rather than trying to say who is fastest, happiest, most global or most affordable.

Belfast Telegraph