Bankers gloomy over economic outlook
The North's economy is already in recession and will fare worse than the UK as a whole during the current downturn, leading bankers said today.
There will be a sharp rise in unemployment as the local economy contracts by 1.5% next year following zero growth this year, according to the Ulster Bank’s latest NI Quarterly Economic Review.
Exporters will be badly hit in 2009 and by the end of the year house prices will be down 40% on their August 2007 peak, it predicted.
Adding to the gloom, the bank said the province’s large public sector would not be a buffer against recession as it was in the early 1990s.
Ulster Bank economist Richard Ramsey said with a large exposure to the retail and construction sectors, combined with a significant slowdown in public expenditure, the North would suffer more than the UK as a whole during the downturn.
He also predicted unemployment would shoot above 6% – latest government figures put it at 4.3% – as all sectors of the local economy slowed down.
It would include significant slowdowns in both the retail and business services sectors which have been the key drivers of employment growth in recent years, he warned.
“As the UK hit the trough of its recession in 1991, the North actually recorded economic growth that year of 1.4%. This time around, the large local public sector will again offer some protection as approximately 30% of workers here are employed in the public sector compared to around 20% in the UK as a whole,” he said.
However, he added: “Due to its exposure to the housing market downturn and to consumer sensitive sectors such as retail, the North will not escape recession and will actually fare worse than the UK as a whole.”
The zero growth this year and 1.5% contraction next year is in contrast to growth of 0.8% for the UK in 2008 and a contraction of 1% next year.
“It is our view that the local economy is already in recession with private sector output having contracted for the past four quarters,” said Mr Ramsey.
He said the Purchasing Managers’ Indices – highly respected international economic indicators – have pointed to a market weakening of economic activity in the North in recent months.
Record lows were recorded for both the UK and the North in September, with the province significantly below the UK level.
“Since the middle of 2007, the local economy has experienced a rapid slowdown and at a much faster rate than the UK average.
“Indeed the North has experienced the sharpest contraction in business activity of all the UK regions during the 12 months to September 2008,” said Mr Ramsey.
Construction has borne the brunt of the showdown, however the manufacturing sector recorded the sharpest falls in output and employment in the third quarter of the year, he said.
“As our two biggest trading partners, the rest of the UK and the Republic of Ireland, enter recession, local exporters will be impacted significantly and exports in 2009 will fall,” he added.
The report predicts UK interest rates will be cut to at least 3% from the current 4.5% over the next year – with 0.5% cuts this month and next following that in October, and a further 0.5% expected next spring.
On the housing front Mr Ramsey said the majority of the “pricing correction” had already taken place and he did not expect prices to fall to the 2005 levels some have predicted – though they will be down 40% on their peak in the summer of last year.
He told the Executive it should focus on what it could change and accept what it could not.
Although capital investment was at record highs, there was still a significant capital investment under-spend which, if delivered, could provide an important offset to the economic downturn, said the economist.
