The latest economic output statistics confirm that the Northern Ireland economy was growing strongly in Q2 ahead of the EU referendum result. The Northern Ireland Composite Economic Index expanded at its fastest rate (+1.0% q/q) in almost three years in Q2 2016 and hit its highest level in over 6 years. However, this overall headline performance conceals divergence between the private and public sectors. While the former remains in expansion mode the latter continues to reduce its headcount in the face of public spending pressures.
In Q2 2016, Northern Ireland’s private sector reported positive growth on both a quarter-on-quarter basis and on an annual basis across industrial production (mostly manufacturing), construction and services industries. The pace of private sector output growth doubled between Q1 and Q2 to 1.6% q/q. This represented the fastest rate of growth since Q3 2013. Furthermore, private sector output reached its highest level in almost 8-years in the latest quarter and has returned to the 2005 levels that pre-dated the ‘freak peak’ of 2006/2007.
More recent survey data, such as the Ulster Bank PMI, suggests that the Northern Ireland economy broadly stagnated in the third quarter. The Brexit vote has created uncertainty across many private sector firms which may impact on investment intentions. Meanwhile the steep fall in sterling in recent weeks will provide a significant boost for exporters, the hospitality industry and cross-border retailers. As far as cross-border shopping is concerned, this year should be a bumper Christmas for shoppers from the Republic of Ireland. Moving into 2017, however, the negative impact from a weak pound will increasingly be felt in terms of import price inflation (food, petrol, fuel etc) and a squeeze on disposable incomes.