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Economy Watch: Productivity must be at the heart of economic strategy

Economy Watch by Conor Lambe, Danske Bank chief economist

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Productivity levels here have been almost 17% below those in the wider UK

Productivity levels here have been almost 17% below those in the wider UK

Productivity levels here have been almost 17% below those in the wider UK

The Northern Ireland Executive and Assembly has now been back in situ for just over seven weeks. This is undoubtedly a welcome development which should have a positive economic impact.

The absence of the Executive was regularly cited by respondents to our Danske Bank Consumer Confidence Index survey as a factor negatively impacting how they were feeling in recent years.

The new team of ministers are already facing a number of challenges ranging from Brexit to problems around healthcare and education, but it is encouraging to see our locally elected representatives in place and working to address those difficult issues.

Following the New Decade, New Approach agreement, there are a plethora of articles that could be written around policy-making in Northern Ireland throughout the 2020s, but the topic that has been most on my mind is what a new economic strategy for Northern Ireland might look like.

A couple of points are of particular relevance here from the New Decade, New Approach document.

The first is the commitment to publishing a new Programme for Government alongside a multi-year budget.

The shift to multi-year budgets is a welcome step as not only will they will help to reinforce the policy priorities of the Executive, they should also facilitate much better planning around future spending.

The second is that the document also lists a number of different strategies which could support the Programme for Government, and that list includes an economic/industrial Strategy.

Before the Executive collapsed in January 2017, the Department for the Economy published a draft industrial strategy for Northern Ireland.

It contained a lot of good material around increasing the competitiveness of the local economy, stimulating innovation, driving inclusive growth and equipping Northern Ireland to compete internationally.

One thing that was largely missing from that strategy was a recognition of the changes that Brexit will bring and how they might be addressed.

That is something that will need to be taken account of in a new document.

The main point I want to make in this article is my belief that improving productivity levels in Northern Ireland must be at the forefront of a new Economic Strategy.

Productivity is best defined as the amount of output that is produced in an hour of work. In the long-term, it is a key driver of economic growth, wage increases and living standards.

In Northern Ireland, we face a long-standing problem of low labour productivity levels.

Last month, regional productivity figures published by the Office for National Statistics showed the extent of this problem. In 2018, productivity in Northern Ireland fell by 2% compared with the previous year.

When measured against the UK as a whole, output per hour in Northern Ireland was 15.6% below the national average. And this is not just a 2018 phenomenon.

On average between 1998 and 2018, productivity levels in Northern Ireland were almost 17% below those in the wider UK.

And the UK itself has been a relatively weak performer with regards to productivity growth in the years since the financial crisis.

This gap in productivity levels is one we need to start to close.

Unfortunately, there is no silver bullet and no quick fix when it comes to raising productivity levels.

Tackling the issue will require a policy prescription that includes investing in physical and digital infrastructure, working with businesses and education providers to boost skills and create training and retraining initiatives for employees, encouraging firms to spend more on research and development activities and to identify new and innovative ways of doing things, and supporting and encouraging local businesses to increase their exports and compete with the best firms from other countries.

At the start of this decade, the need to develop a new Programme for Government and a new Economic Strategy gives local policymakers the chance to renew their efforts to tackle some of the economic and social issues that Northern Ireland has faced for far too long.

Low productivity levels clearly fall into that category. In my opinion, boosting productivity needs to be at the heart of a new economic strategy.

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