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Recovery hinges on rising stars of the NI economy

Economy Watch by Andrew Webb, chief economist, Grant Thornton

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Rishi Sunak

Rishi Sunak

Getty Images

Rishi Sunak

Close to 20 years' worth of economic growth have been lost over the past number of months.

While such economic havoc that Covid-19 has wreaked in a short period does bring significant challenge and hardship, these will always pale in significance in comparison to the human tragedy brought about by the virus.

Hopefully we are through the worst of the human tragedy and we can quickly find a way to live with the virus, and even eradicate it.

The type of economy we are emerging into is one teetering on the brink of a deep and lasting decline or a sharp decline and recovery.

While a deep and lasting decline seems more likely at this point, the government do appear alert to the risks and seem prepared to make significant interventions to boost the economy.

Where the mantra was once that there is no 'magic money tree', it seems that Rishi Sunak, the Chancellor, knew differently and has shaken it at will since the start of the Covid crisis.

Between April and June, the government's net cash requirement - the deficit of tax receipts over public spending - was £174bn.

To put this in context, during the same period a year ago the figure was £20bn and the previous record (during the height of the global financial crash) was £77bn.

We know that the Chancellor turned the spending taps on in dramatic fashion, with the furlough scheme and other supports, but there has also been a collapse in tax receipts as VAT deferrals and fewer national insurance and PAYE receipts impact.

In the months ahead, the aim is to prevent the roughly nine million jobs that have been furloughed from becoming permanently redundant and leading to mass unemployment (in Northern Ireland, there are over 200,000 who have been temporarily laid off).

Hence the various initiatives to get us spending again, and spending in sectors that have been particularly severely hit by the Covid closures coupled with job retention and job creation schemes.

While governments are making significant emergency financial injections into the economy, the outcome from these interventions remains exceptionally uncertain and the economy is expected to decline significantly in 2020.

HM Treasury's useful collation of independent forecasts for the UK economy shows a range of guesses for where the economy is heading, 21 of which have been released this month so reflect as up to date a view as is possible. The average of these new forecasts is that the UK economy will contract by just over 9% in 2020 before posting growth of 6.6% in 2021.

There is no consensus around these rates of growth and they range from -12% to -6.6% this year and 1.5% to 10.3% next year.

Locally, Danske Bank have taken a view that the economy here will contract by 11% this year and grow by 7% in 2021.

It is worth noting that this dire prediction for Northern Ireland assumes a free trade agreement which keeps trade between the UK and the EU largely tariff-free will be reached.

If, and it remains a real risk, there is no deal between the EU and UK, the economic prospects for Northern Ireland will become more challenging.

With such a difficult time ahead, where are we looking for growth?

The Department for the Economy, in a paper on rebuilding a stronger economy, is honing in on sectors which can address the long standing challenge of having too few high paying jobs in our economy.

These sectors are:

Advanced manufacturing: The advanced manufacturing sector accounts for just shy of 10% of our economy and across 2,200 firms approximately 46,000 people are employed.

The sector is also one of our biggest exporters, selling several billions of pounds worth of products across the world.

There is no doubt the sector is facing big challenges over the Covid and Brexit period but given the importance to our economy, it offers a route to higher paying jobs.

Life and health sciences: We have a vibrant cluster of 250+ companies here employing at least 10,000 people and a very strong research base in our two universities. With the recent health crises, building capacity in this sector is a vital part of ensuring we can respond well to future demands.

Clean energy: One glimmer of positivity from the Covid-19 lockdown has been the reduction in CO2 emissions.

This is amplifying calls for economic recovery plans and 'build back better' initiatives to major on climate action. Again, we are well placed to act here.

About half our electricity now comes from renewable sources such as wind and solar and innovative schemes under way like the Girona 'micro grid' project in the Coleraine area will combine renewables, energy storage and smart grid technology to deliver cleaner and lower cost energy. It's all to play for, in creating economic opportunity from a need to become net carbon neutral by 2050.

Digital: Northern Ireland has had outstanding success in developing a digital/tech sector which is now estimated to be worth a billion pounds and which employs close to 30,000 people.

We can now claim to be a global leader in cyber security and a leading destination for new software development inward investment.

This global reputation is not just built on inward investment but also on a dynamic start up community.

Both will stand us in good stead when seeking new opportunities to grow the sector.

While these sectors potentially offer a route to economic recovery, there are a range of sectors such as retail, hospitality and the creative sector that serve Northern Ireland exceptionally well with respect to providing jobs and incomes.

In thinking about these types of sectors, I was reminded of research I was involved with a couple of years ago that articulated the economic and social value of an oft overlooked sector - adult social care.

While this sector, which supports approximately 45,000 jobs, will rarely feature in growth wish lists of policy makers, its importance over the past six months has brought its significance into sharp focus.

Given that demand for care will naturally increase as our population ages, and given what we have come through as a society this year, it might be time to think about how that sector can support our economic ambitions.

Belfast Telegraph