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Orders and output at seven-year low in Northern Ireland but optimism for 2020 is high


Ulster Bank economist Richard Ramsey

Ulster Bank economist Richard Ramsey

Ulster Bank economist Richard Ramsey

Sharp declines in output and new orders at Northern Ireland companies are at a seven-and-a-half year low new data has revealed but optimism for next year remains high.

The Ulster Bank Northern Ireland Purchasing Managers' Index (PMI) produced for the bank by IHS Markit pointed to sharper declines last month.

It said the Business Activity Index dropped to 42.3 in November from 44.9 in October. Output has now fallen in each of the past nine months, with the rate of contraction accelerating to the fastest for seven years.

The worst hit sectors are retail and construction which sit at 35.4 and 37 respectively.

A reading below 50 signals a decrease.

Brexit uncertainty was the main factor leading to the decline, according to respondents who indicated a wariness among customers to commit to new projects. In line with the picture for business activity, the rate of decline in new orders accelerated and was the sharpest since May 2012.

Respondents also said employment had decreased but at a "relatively low pace".

Richard Ramsey, chief economist, Ulster Bank Northern Ireland, said: "One of the most striking aspects of the latest survey is the continued resilience of the labour market, with firms broadly maintaining their staffing levels despite a big fall-off in demand. Indeed, the pace of decline in business output and new orders fell to seven and seven-and-a-half-year lows respectively last month.

"All four sectors have posted falling output in six of the last seven months; however, the performance of retail and construction are of particular concern.

"Construction order books continued to shrink for the 15th month in a row and November marked the sharpest rate of decline in 92 months. It is a similar story for retailers with orders falling at their fastest pace since March 2009.

"In this environment, firms' desire to maintain staffing levels comes at a cost to profit levels. The latest survey shows that input price inflation continued to rise in November, but firms are not able to pass these increased costs on to their customers and indeed discounting is widespread in an attempt to generate new business."

He added: Firms therefore seem willing to take a hit to their profits in the short-term in the hope that conditions will improve once there is greater certainty around Brexit."

He said many businesses expect market conditions to improve after Brexit but warned it may prove to "be overly optimistic", adding: "Even if a Brexit deal is passed there is still much to be decided... uncertainty will therefore continue to be very much present in 2020."

Belfast Telegraph