Belfast Telegraph

What's on the horizon for Northern Ireland business in 2020: Top economists predict what new year has in store

Top NI economists predict what 2020 will bring to our shores
Top NI economists predict what 2020 will bring to our shores

Top Northern Ireland economists predict what 2020 will bring to our shores

Conor Lambe: 2019 was another subdued year for the Northern Ireland economy. The strong labour market supported consumer spending, but uncertainty over how Brexit might play out acted as a drag on business investment, and the slowdown in global economic growth created a more challenging environment for exporters.

Before Christmas the latest output data for Northern Ireland showed that services activity in the third quarter of 2019 fell by 0.1% compared with quarter two and increased by just 0.6% over the year.

Production output fell by 2.2% over the quarter and 0.8% over the year. In short, this was a disappointing set of numbers.

However, looking across the year as a whole, there were a few positives in 2019 from which we can draw some optimism.

The housing market came through the year in a reasonably strong position, and it was another good year for tourism in Northern Ireland.

Turning to 2020, following the outcome of the general election, the UK will now leave the European Union at the end of January.

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Brexit is still likely to have a significant influence on the economy this year and it is important to remember that the events of the last few years have only related to the first part of the Brexit process.

The talks will soon move on to negotiating the future relationship between the UK and the EU and based on current deadlines, there may only be 11 months in which to reach an agreement, which isn't very much time at all.

Throughout this year consumer spending will probably have to continue doing the heavy lifting from an economic growth standpoint as continued uncertainty related to Brexit will likely keep business investment constrained.

Overall, I expect economic growth in both Northern Ireland and the wider UK to remain modest in 2020.

For many years now Northern Ireland has faced the challenges of high economic inactivity and poor productivity. As I have said before, tackling these issues will take time and will involve collaboration between government, businesses and other organisations, such as educational bodies.

As we move into a new decade, let's hope that the 2020s become the years during which we make real improvements in these areas - driven by a rejuvenated Stormont Executive and Assembly.

Conor Lambe is chief economist at Danske Bank

Paul MacFlynn: Looking at the most recent economic statistics for Northern Ireland, the first half of 2019 looks to have been a fairly unremarkable period for the economy.

In terms of economic growth, overall performance was modest but steady. In terms of the labour market, the first half of 2019 saw some of the lowest rates of unemployment and an above inflation increase in wages.

Given the long shadow cast by the aftermath of the global financial crisis almost a decade ago, those figures might lead you to conclude that Northern Ireland was performing well enough.

However, 2019 was a year of two halves and we don’t yet have a full set of results.

Nevertheless, we do have some indications of what happened over the second half of the year, and the signals are not good.

While 2019 will likely end with the UK and the EU finally ratifying a withdrawal agreement, for most of the second half of the year the Brexit process hung over the Northern Ireland economy like the Sword of Damocles.

The prospects of a ‘no-deal’ swung wildly as the political theatre in Westminster oscillated between tragedy and farce.

We don’t yet have figures for output growth in the second half of the year, but it is quite likely that the effect of the upheaval for firms will show up in the data for the last two quarters of the year or may even eat into growth in the first quarter of 2020.

Figures for output in both services and manufacturing indicate that the trend of economic growth has slowed considerably.

Unemployment reached an all-time low of 2.3% in 2019 and this led many to suggest that Northern Ireland was at full employment. This would be an undeniably positive development because the theory is that full employment boosts wages and wages have been one of the most disappointing aspects of the recovery over the last decade in the UK.

We did see some uplift in this regard, however it wasn’t nearly as impressive as we might have expected given the circumstances. Wages grew by 3.3% or just 1.2% after we adjust for inflation.

That is positive, but it is far lower than most wage increases seen before the financial crisis, when unemployment was actually higher. This means that either we are not at full employment or that something is preventing wages from rising sufficiently.

Neither of these explanations is encouraging. If, as the figures suggest, the economy is about to contract, it is possible that the long-awaited recovery in wages just never arrives.

The indications for 2019 at the start of the year were that Northern Ireland might escape the worst. This is unlikely to be the case and the omens for 2020 don’t look good either.

Paul MacFlynn is economist at Nevin Economic Research Institute

Andrew Webb: The local economy is finishing the decade in a curious place.

There are many bright spots, certainly compared to how the economy entered the decade.

It doesn’t feel like a full decade since we were in the grip of the global crisis which saw Northern Ireland lose significant numbers of employees and many firms struggling to survive.

Austerity was a new concept and Brexit didn’t exist. Since then, the labour market has posted a remarkable turnaround. Almost 75,000 net new jobs have been added since 10 years ago.

Employment levels have continued to increase all year but the remarkable jobs performance hasn’t been matched by particularly strong growth elsewhere. GVA has trundled along and average wages are only just recovering from a decade of stagnation. The decade is closing out with consumers and businesses in a downbeat mood.

Sentiment indicators suggest the confidence that ebbed away in the early part of the year has not returned, as the scale of uncertainty around Brexit delays, trade wars and our local political stalemate continues.

The key question is now when these downbeat assessments of the economy will start to manifest in job market data. It is hard to pinpoint a timescale on that and few are talking of an all-out downturn at this point.

The year ahead looks set to be at least as bumpy as 2019. Early in the year we will have the UK’s departure from the EU followed by trade discussions. If those trade discussions don’t conclude by the end of 2020, the default position of WTO rules kicks in.

Towards the end of the year, all eyes will turn to the US presidential election. The build-up and outcome from that will ripple across the global economy and will set the tone for global trade for the next four years.

Closer to home, the PM’s majority gives him and the Chancellor a clear run at implementing the tax and spending plans they outlined during the election, if they choose to do so.

We should see a budget early in the new year, most likely by February. From Northern Ireland’s perspective, there may be a boost for pay packets through the pledged increase in National Insurance thresholds. 

But what Northern Ireland really needs is for the Chancellor to start putting serious money behind his pre-election ‘infrastructure revolution’ pledges.

There are several towns and villages across Northern Ireland where building work is now curtailed due to a lack of capacity in wastewater treatment, sewerage etc. Our road and rail networks are not in great shape.

Billions of pounds need to be spent on infrastructure. Failure to address the challenge will start to impact on our economic performance. Our infrastructure cannot survive another decade of underinvestment.

Andrew Webb is Grant Thornton chief economist

John Simpson: In political terms, getting Brexit done during 2020 will be assessed in terms of the possible advantages or disadvantages of the UK-EU protocol as agreed, and judged in terms of avoiding the creation of a commercial border on the island of Ireland. 

The business community seek assurance that traders in Northern Ireland will not face new obstacles to free trading conditions.

The symbolism of creating an economic border in the Irish Sea conveys a strong negative image. Does this mean that trade within the UK, meaning between GB and NI, will be disrupted by new obstacles to business? That apparently simple question has a complex but reassuring answer.

First, there should be no dispute that the UK-EU protocol shows cross-border trade on this island should be uninterrupted by the arrival of Brexit. To that extent, economic integration should continue: no new rules or tariffs, so long as regulatory alignment, which already exists, to EU standards is maintained.

Second, there must be assurance that trade within the UK, affecting goods and services trading between NI and GB, which is currently frictionless of regulatory processes, should be unimpeded. This is where the processes are less clear-cut. 

The official language is a helpful starting point. To quote the protocol: “Nothing ... prevents unfettered market access for NI products in GB. There will be no tariffs, quotas or checks on rules of origin between GB and NI.”

The possible administrative friction comes for industrial goods coming from GB to NI. Potentially these goods may be routed through NI to the Republic of Ireland, in which case they pay EU duties on entry (in transit) south of the border. Some form of paper trail to monitor this trade, which is effectively entering the EU (of 27), is needed. 

The EU has agreed that the UK should carry out such checks on the market or at a trader’s premises. Trade from GB to NI will be unfettered but may need to be vouched for to make the distinction between internal UK trade and export trade to the EU. 

That distinction, however informally monitored, will be critical to ensure minimal documentation and unrestricted business.

Other features linked to the withdrawal which need specific administrative or regulatory rules include the continuation of rules to protect animal and public health (which strengthens existing practice) and, for NI, an adaptation of the rules for VAT.

At first sight, the effect of the Withdrawal Agreement on NI businesses and customers does introduce extra formal procedures. These may be initially onerous in their application. In due course, NI may be able to settle to new systems which offer the better choice of two different trading options.

Brexit will be a continuing process, not a one-off event.

John Simpson is a leading NI economist

Neil Gibson: Despite an extremely difficult backdrop, the NI economy performed ahead of expectations in several key areas in 2019.

A record number of people are in work, unemployment is at its lowest level in 40 years and wages are rising faster than inflation.

It is true there are questions about the nature of the jobs created, with both temporary and part-time jobs on the increase.

Nevertheless, this is an unquestionably better outcome than I expected. The spectre of Brexit, the lack of an Executive, several high-profile firms reporting trading difficulties and a long list of surveys pointing to a concerned business community are all reminders that 2019 had its fair share of challenges.

I predicted the labour market would flatline in 2019 — and it did not. There were 40,700 more workforce jobs in Q3 2019 than a year ago (of which over 25,000 are self-employed jobs).

Growth may have been disappointing and investment levels remain very low — which partly explains the job market — as firms resist the substitution of labour with capital.

However, the citizens’ experience has not been as adversely impacted as feared.

Just as 12 months ago, we begin 2020 with Brexit still on the horizon and a hope that the Executive will return. Below are my five predictions for 2020:

1) the Executive will return — the general election result was a warning the public will contemplate different choices if they do not feel politicians are fully doing their jobs.

2) The business community will play a more prominent role in Brexit negotiations and will have a closer relationship with a new Executive. They have stepped up admirably as a group in the absence of elected officials and are increasingly offering solutions rather than focusing on tax cuts or spending requests.

3) A revamped Programme for Government will be produced, setting NI on a journey that encompasses a more holistic view of economic and social progress.  More akin to a wellbeing narrative, economic, societal and environmental issues will become increasingly intertwined.

4) The job market will stop expanding due to tougher global conditions and consumers easing back spending.

5) ICT and healthcare will be the leading job creators on the back of very strong demand and, in the case of ICT, a growing global reputation for Northern Ireland in fields such as cyber security, analytics and AI.

One challenge I have for 2020 is to refocus on the need to cultivate a vibrant economy. Having been an advocate for the consideration of wider measures of success, it is important not to ignore the need for a healthy tax base. 

Very little can be done without a considerable level of investment. We need a vibrant and successful private sector at the centre of our wellbeing future.

Neil Gibson is chief economist of EY Ireland

Belfast Telegraph