Danske Bank revises its forecast for economy downwards as impact of Omicron persists
The Omicron variant has had a chilling effect on economic predictions for growth in Northern Ireland this year, a report said today.
Danske Bank is now predicting growth of 4% in 2022, down from an earlier forecast of 4.7%.
Its more pessimistic take follows the impact of the variant on consumer-focused sectors such as hospitality.
The variant will also have hampered economic growth at the end of 2021, Danske Bank said.
But more optimistically, it has now revised up its expectations for the jobs market, and predicts that unemployment will remain at a rate of around 3.9%.
Danske Bank estimates that the economy here expanded by 6.2% in 2021, while the UK economy enjoyed 7.2% expansion.
But businesses presented a rosier view of their prospects for the year in a survey for the NI Chamber of Commerce. According to the Chamber, 70% of members expect their business to grow in 2022.
Conor Lambe, chief economist at Danske Bank, said the outlook for the economy as a whole grew more bleak as the end of the year approached.
“The Northern Ireland economy expanded again in the third quarter of 2021 but the pace of growth slowed,” he said.
"Growth is also expected to have slowed in the fourth quarter as supply side issues continued and the emergence of the new Omicron coronavirus variant likely stifled activity in the consumer-focused sectors.”
He said the Omicron variant had induced consumers to behave more cautiously so far this year, while levels of business activity were hit by people having to self-isolate.
“In addition to this, high inflation and supply chain disruption are continuing to pose challenges for consumers and businesses.”
Danske said sectors hardest-hit by lockdowns, such as accommodation and food, as well as arts and entertainment, would continue to have rapid recovery this year at rates of 17.7% and 11.7% respectively. But trading would get off to a slow start, given the effects of Omicron.
And while shops and wholesalers enjoyed growth of 7% in 2021, Danske Bank said they would feel the pinch this year from a squeeze on household spending and supply chain disruption.
Manufacturing is tipped by the bank to grow by nearly 4% this year but it will be under pressure from rising prices for things like raw materials, energy and wages.
Those factors would also inhibit the construction industry in 2022, Danske Bank added.
But the sectors of professional and scientific, and information and communication, were both tipped to perform strongly and enjoy growth of nearly 5%.
And Danske also revised up its predictions for the jobs market in 2021.
After predicting a fall in employee jobs in 2021, it has now forecast an increase of 0.2%. And that increase would be outpaced by growth in employee jobs of 1.4% this year.
It said the heartiest employment growth was for the information and communication sector, where jobs were up 5%. And the professional and scientific field is estimated to have had jobs growth of 3.4%.
Jobs in manufacturing are expected to grow 1% this year. But Danske said it expected there had been a fall of 3.6% in construction jobs in 2021, though there would be partial recovery of 2.2% this year.
And with jobs in arts and entertainment, as well as accommodation and food, down during 2021, both sectors are tipped for strong jobs growth this year.
Similarly, while jobs in wholesale and retail had decreased this year, they were expected to recover at least partly in 2022.
But Danske Bank said risks and uncertainties around its forecasts were more elevated than usual.
Mr Lambe said: “The emergence of the Omicron coronavirus variant and the sharp rise in the number of positive Covid-19 cases has created considerable uncertainty around the economic outlook.
"A prolonged period of supply chain disruption and further upward price pressures also represent potential risks to the performance of the economy in 2022.”
The separate business survey from the NI Chamber for the end of last year found greater positivity among firms about trading conditions with most members expecting their business to grow this year.
However, soaring costs were a big factor, prompting nearly three-quarters of members to have to consider putting up their prices in the next three months, the highest figure on record.
High raw material costs and pressure to raise wages were causing significant concern, particularly for manufacturers. And businesses here were more likely to be considering putting up their prices than those in other UK regions.
There was also strong demand for new staff, with over 70% in the process of recruiting, although most said they were facing recruitment problems. Over half of businesses were operating below capacity.