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Northern Ireland economy shows signs of ‘slipping’ into recession

The latest Quarterly Economic Survey published by Northern Ireland Chamber of Commerce and Industry and business advisors BDO suggests that Northern Ireland’s economy is in decline, as businesses feel the harsh effects of the Brexit impasse and the fall out and frustration from the protracted absence of a functioning Executive at Stormont. 

The survey brings to light serious concerns around economic and particularly political instability in Northern Ireland and the UK, with almost 4 in 5 local business leaders believing that a recession in Northern Ireland is likely in the next 6 to 12 months. 

Significantly, around half of members have also scaled back or put on hold investment and growth plans on the back of the UK’s vote to leave the EU. 

Michael Jennings, Partner at BDO, said: “We have seen the confidence of our businesses challenged over the last three months, with talk of uncertainty around a range of key issues continuing to test the resolve of our manufacturing and services sectors. 

“For many businesses, particularly within manufacturing, investment plans have been on hold since the EU referendum in 2016, with the hope that clarity around issues such as tariffs, the border and customs would be provided. This approach has meant many businesses have been limited in their capacity for growth, which would have in turn had a positive impact on our local economy, employment and product offering.         

“Despite this we are continuing to see a positive commitment to recruitment from both manufacturing and services and both are working to almost full capacity, with the services sector in second place across the regions. 

“As we approach October 31st, it is hoped that clarity is finally provided on the big issues that are impacting the growth of the NI business community. Our local businesses are not lacking in ambition or indeed entrepreneurship, they are willing to invest to grow their specific sector, but they desperately need decisions to be made on these key issues to allow them to progress their plans.”

Falling confidence

The latest QES provides evidence that much of the Northern Ireland economy’s post recovery gain has been eroded following the Brexit vote. Order books in both the manufacturing and services sectors are very weak for both domestic (UK) sales and exports, with more firms in both sectors reporting a fall in orders over the next 3 months compared to those reporting a rise. Cash flow has been a persistent problem for both manufacturing and services and the cash flow position of both also deteriorated this quarter.  Previous survey evidence highlighted that businesses have been trying to remain confident around business prospects. However, the Q3 findings would suggest that this confidence is being severely challenged with fewer members believing that turnover and/or profits in their business will grow in the next 12 months.   

Manufacturing

The findings highlight significant concerns for local manufacturers. The majority of key balances in Q3 were negative suggesting limited growth and potentially some contraction in the sector. Manufacturing’s trade performance is the worst recorded by the QES in almost a decade with negative balances in terms of both domestic (-29%pts) and export (-10%pts) order books in the next 3 months. 

This means that more manufacturers are expecting orders to fall over the next 3 months than those expecting them to rise. Previously strong employment balances have weakened considerably and Northern Ireland is the poorest performing UK region on this measure. The sector’s cash flow position remains precarious with a negative cash flow balance (-16%pts) in Q3, lowest across the 12 UK regions.  Balances around confidence in growth and investment are also negative. 

Services

There has been a striking deterioration in the service sector’s performance in Q3, particularly around trade. More key balances are negative this quarter (8 out of 14) and 12 of the 14 balances are down on Q2 19. Domestic sales and export balances are all negative with order books for the next 3 months looking particularly weak. 

Investment intentions have been weakening since the start of 2018 with the balance of firms investing in training now negative for first time since the recession. Confidence around profitability over the next 12 months is very weak.  More service sector businesses are experiencing a deteriorating cash flow position with Northern Ireland the only UK region with a negative balance on this indicator in Q3 19. 

However, employment indicators remain positive with more services businesses taking on people than those who are not. There are still some signs of confidence in the sector with more businesses believing that turnover will grow than contract in the next 12 months. 

Brexit fallout

The thirteenth Brexit Watch highlights that Brexit has impacted negatively on the sales of almost half of members (46%). Costs have gone up (47% of members) and EU nationals are harder to retain/recruit (32%).  In fact, two thirds of members have experienced a negative impact from Brexit in terms of sales, costs and/or the ability to recruit.

The share of members stating that Brexit has negatively impacted on turnover has increased from 35% to 46% in the last three quarters alone. This figure has also more than doubled since members were first asked about Brexit’s impact on turnover in Q4 16 (22% negative impact).  

Commenting on the results, Ann McGregor, Chief Executive, Northern Ireland Chamber of Commerce and Industry said: “These figures are tangible warning signs about current economic conditions in Northern Ireland, with this quarter’s performance being arguably the weakest in almost a decade.  When compared to other regions across the UK who undertook the same survey, Northern Ireland ranked bottom for 8 of the 14 key manufacturing balances and 10 of the 14 key services balances.  

“This is clear evidence that the impact of the ongoing Brexit uncertainty is being felt more harshly in Northern Ireland than anywhere else. The lack of a functioning Executive visibly adds to this uncertainty and combined with Brexit, creates an environment where key strategic business decisions are being abandoned or delayed.

“The Northern Ireland economy cannot flourish without investment by our local businesses and they need the support of government to create an environment which is conducive to this. 

“This is not scaremongering – it is a stark reality check for business leaders, employers, politicians and anyone with a vested interest in the Northern Ireland economy. Behind each and every one of these statistics sit thousands of real, local businesses who are feeling the harsh impacts of Brexit uncertainty and the political vacuum at Stormont. 

“As we reach a crunch stage in negotiations, the prosperity of our business community and wellbeing of our citizens is on the line. We need to see immediate action to avoid a messy and disorderly Brexit on 31 October and must have the institutions at Stormont restored urgently – the future success of our economy depends on it.”