The shocks that the NI economy has faced in 2020 and will continue to loom large in 2021 vindicate John Kenneth Galbraith’s quip that economic forecasting exists merely to make astrology look intellectually respectable.
Indeed in terms of thinking about the region’s economic prospects into 2021 and beyond, trying to predict precise outcomes is perhaps a less fruitful way to think about the issues relative to thinking critically about possible scenarios which may unfold.
In a situation where uncertainty concerning Covid-19 may very well interact with the way Brexit evolves, uncertainty will only continue to influence commercial decisions as both supply and demand side need to continually readjust.
What we can say with some degree of certainty is that the Northern Ireland economy has very longstanding weaknesses and while dealing with the urgent issues arising out of the public health crisis are entirely understandable, a consequence of prioritising short-term stabilisation is that attempts at addressing underlying ‘competitiveness’ problems, which place a ceiling on economic performance, are postponed.
To some degree this might seem unavoidable but it is worth remembering that during 1940-1945 the UK civil service and machinery of government managed to lay the ground work for the post-war welfare state as well as fight the war. In the discussion that follows we will speculate regarding output, employment and longer term prospects.
In terms of output, despite the data limitations, it is fair to observe that NI has broadly tracked the UK trend during 2020 and this pattern may well continue into 2021. However, we need to caveat any speculation on the future direction of output by noting that the renewed restrictions on business activity, which (at the time of writing) came into place in mid-October, has increased the likelihood is that the overall decline in NI GDP over the course of the whole year will be worse than could have been predicted earlier in the Covid-19 crisis.
Indeed, the shock to the system could equate to a 10-12% decline in 2020. With a NI economy heavily dependent on retail and the high street more generally plus a large aerospace sector, the degree of output recovery may not be either strong or durable.
With output growth prospects fragile, the growth of employment cannot but remain a problem. Again at the time of writing we cannot know how many of those furloughed will become unemployed when the Job Retention Scheme (JRS) ends.
The number of unemployed claimants by mid-October has already increased to above 60,000 (more than doubled compared to March 2020). There was speculation that figure could reach about 100,000 by the end of the year. Again a lot of uncertainty in involved in thinking about the direction of future employment levels. The related issues of how wage levels and job quality will develop in 2021 is a further complication.
Returning to less urgent but perhaps more profound economic issues, in terms of policy the urgent may have sometimes crowded out the important. The NI Executive is behind some of its targets as set by the January 2020 ‘New Decade New Approach Agreement’. The Department for the Economy did publish a document about rebuilding the economy in June – this did stress that priority was being given to short term responses.
Likewise, the policy machinery intended to deal with addressing long-term weaknesses, such as the creation of a fiscal council, have been delayed. A threat in 2021 is that dilution compounds delay in the area of policy reform.
Dr Graham Brownlow is senior lecturer at Queen’s University Management School and Dr Esmond Birnie is senior economist at Economic Policy Centre at Ulster University