| 7.3°C Belfast

NI economy to shrink by 10.9% in 2020 before growth next year

Our performance will closely track the UK, says EY but we are also at risk due to uncertainty over Brexit

Neil Gibson

Northern Ireland's economy will suffer its biggest ever drop of nearly 11% this year before recovering by around 5.5% in 2021, according to a report today.

The Economic Eye from business advisers EY claimed Northern Ireland's "strong" labour market and large public sector would insulate the economy against greater losses.

And the level of economic shrinkage here is similar to that forecast for the UK, at 10.1% for this year, followed by a 6% rebound next year.

EY's forecasted contraction is less steep than a 15% drop predicted by Ulster Bank.

Professor Neil Gibson, chief economist for EY Ireland, said: "The region is heavily dependent on consumer sectors and has a concentration of industrial sectors which have been strongly impacted by Covid-19, namely heavy machinery and transport equipment. However, NI's favour for large public sector organisations, so often cited as a weakness, has provided stable and secure employment for many."

EY said that Northern Ireland was heavily reliant for employment on sectors, such as retail and accommodation, which had been badly hit by Covid-19 restrictions. And it warned that the longer such sectors are disrupted, "the greater the risk that not all businesses will survive to enjoy the pick-up".

Professor Gibson said that unemployment levels had remained fairly stable after spiking at 60,000 a few months after the pandemic - that was double the claimant count of March.

"This partly reflects the effectiveness of the furlough scheme but is also an endorsement of the flexibility and adaptability of NI businesses and workers, a commonly cited positive amongst investors to NI."

At the end of August, there were 70,500 people enrolled on the furlough scheme here.

But Prof Gibson warned that underlying weakness - reflected in the composite index at the end of last year, which showed the economy was already in recession - were a major issue.

Talks over a future free trade agreement between the EU and UK were also at a critical juncture, EY added. "Despite the UK having already left the EU, much remains unclear regarding NI's unique position, making it very hard for businesses to effectively prepare."

But there were some positives, including the ability of sectors such as professional and administrative services to continue operating in the pandemic.

And the continued strength of the housing market was also a postivie, along with growing demand for digital workers and delivery drivers.

Michael Hall, managing partner for EY in NI, said: "Digital technology is unlocking considerable productivity gains across a wide range of firms.

"There is a concern that in a region heavily dominated by very small firms, there may be a lack of resources to make this investment.

"However, in an increasingly broad range of sectors, technology is lowering the cost of entry, removing the cost associated with peripherality and driving competition. Brexit will require exporters to have better data systems in place and it is becoming clearer that digital progress for firms will be a requirement, not an option."

EY added that NI also scored highly on quality of life metrics.

Belfast Telegraph