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NI private sector shows 'tentative signs' of recovery, says report

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Economist: Richard Ramsey

Economist: Richard Ramsey

Economist: Richard Ramsey

The private sector here is showing "tentative signs of recovery" from the ravages of coronavirus as parts of the economy reopened last month, according to research today.

The latest Ulster Bank NI PMI report, produced by IHS Markit, has shown a softer rate of decline throughout June in the private sector.

The headline seasonally adjusted Business Activity Index rose to 42.6 in June, up from a reading of 18.9 in May.

However, a reading below 50 still indicates deterioration.

The fall in activity in Northern Ireland was the second-sharpest of the 12 UK regions, behind only Scotland. Manufacturing production returned to growth, while the remaining three sectors all posted softer reductions in activity. Services saw the steepest decline.

New orders continued to fall sharply, although as was the case with business activity the rate of contraction softened further from April's survey record. The Covid-19 pandemic had led to a further decline in new export orders.

The "softer" fall is down to the reopening of many sectors, says the report - which also revealed further reductions in output, new orders and employment. However, rates of decline had softened after a loosening of lockdown restrictions.

Richard Ramsey, chief economist for Ulster Bank, said: "June marked the end of a quarter Northern Ireland's private sector has never seen the like of before. Unsurprisingly the latest Ulster Bank Northern Ireland PMI therefore confirms record rates of decline in output, orders, exports and employment during this period. But while the quarterly data is bleak, this conceals tentative signs of a recovery on a month-to-month basis.

"April, the first full month of lockdown, marked the all-time-low with rates of decline in output easing in May. A loosening in the lockdown restrictions in June has seen this trend continue. Indeed, last month was the first time in eight months that any sector returned to growth.

"Manufacturing was the best performer in June, reporting expansion in output and orders for the first time in eight and 25 months respectively. Forty six per cent of local manufacturers reported an uptick in output in June. While manufacturing remains a bright spot for output and orders growth, it remains a black spot for employment though. Staffing levels continued to fall at a rapid pace in June with firms cutting staff outnumbering those increasing their headcount by four to one.

"It is a similar picture within retail, with sales activity stabilising but firms still cutting staff at a rapid rate. Retail and the hospitality sector (part of services) have been the most adversely affected by the social distancing/lockdown restrictions. Reopening of businesses has been accompanied by a surge in costs linked to personal protective equipment (PPE). Retailers saw their input costs rise at the fastest rate in 33 months."

Mr Ramsey said more improvements will be visible in July as the hospitality sector reopened earlier in the month.

He added: "Measures announced in the Chancellor's Economic Statement such as the temporary reduction in the VAT rate from 20% to 5% will also provide a much-needed shot in the arm for the hospitality sector. It may also help boost confidence in Northern Ireland's private sector which continues to be the most pessimistic region in the UK for output growth in 2021."

Last month Finance minister Conor Murphy said Northern Ireland faces a "very severe" recession - and some have predicted an unemployment rate of 12%.

But Mr Ramsey said job losses here had not been as steep as in other parts of the UK - but that they were still more severe than during the worst of the last financial crisis.

Belfast Telegraph