The latest report forecasts that local economic growth will reach 2.3 per cent this year which would be the strongest performance since 2007. The report also forecasts economic growth of a similar level (2.4%) in 2015.
The bullish outlook for the year ahead is due to a variety of factors. These include: the low interest rate environment, improved confidence, improved credit, lower inflation and less pressure on real earnings as inflation falls back. The report notes that rising employment levels at national level combined with skills shortages in some sectors should also put some upward pressure on earnings this year.
Commenting on the report, Danske Bank Chief Economist Angela McGowan said: “The recovery has truly taken root and we can now see a wide range of economic indicators pointing in the right direction .Consumers are demonstrating greater confidence as the jobs market improves and pressure on domestic incomes has receded. Significantly, the latest official data shows that the business sector too has gained confidence and is now investing – hopefully that will continue in the year ahead”.
Expectations for Job Creation
Although the report notes that the private sector is expected to see solid growth in the year ahead, growth in the public sector is forecast to remain weak. Overall, employment growth of around 7,000 jobs is expected in Northern Ireland this year with the ‘Professional, Scientific and Technical’ sector creating roughly 1,500 of those posts. The private ‘Administrative Services’ sector is also expected to produce a significant number of jobs (1,800) and a further 800 jobs are expected to be created in both the ‘manufacturing’ sector and also in the ‘construction’ sector.
Ms McGowan said “Jobs growth in the year ahead should hopefully follow the general improvement that we have seen in economic activity and business confidence. In addition, it is anticipated that the much improved global environment and in particular the strong recovery in the US and Great Britain should help to bolster foreign direct investment levels in the local economy”.
In terms of economic growth ‘Administration and Support Services’, ‘Professional, Scientific and Technical Activities’, ‘Arts and Recreation’, ‘Manufacturing’, ‘Construction’ and ‘Real Estate’ will all grow at 3 per cent or more. (Together these sectors make up nearly 30 per cent of the entire NI economy).
The report notes that the Retail Sector [which accounts for around 15 per cent of the local economy) is expected to grow by 2.6 per cent as consumer confidence rises and reduced inflationary pressure takes the strain off disposable incomes. However, improved spending levels will not necessarily translate into high job creation for this sector as internet shopping keeps high street footfall levels relatively subdued.
‘Agriculture’, ‘Financial and Insurance activities’, ‘Transport’ and ‘ICT’ will also experience positive economic growth of between 1 and 2 per cent (together these sectors represent around 13 percent of the entire NI economy).
Even in good times risks to economic growth remain and so this latest report highlights a number of issues at the local, the national and even the global level which could impact upon the growth forecast. At national and local level a primary economic risk stems from the Scottish referendum and its impact upon macroeconomic stability and investment in the year ahead.
In addition, any further strengthening of the pound has the potential to negatively impact upon Northern Ireland’s ambition to dramatically increase our exports. On the global horizon geopolitical risk around the Russian/Ukrainian conflict could cause global commodity prices to spike.
Ms McGowan concluded: “The central forecast for Northern Ireland’s private sector in 2014 looks very hopeful. The wider economic environment is now highly conducive to investment, expansion and job creation. For Northern Ireland a key challenge will be to ensure that the right conditions prevail in the local economy which will allow businesses to flourish and job creation to grow. Support for SMEs, improving our competitiveness, attracting investment will all play a key role in embedding and strengthening this economic recovery”.