Robust growth, according to PMI – The last few days has seen a flurry of surveys released on the health of the Northern Ireland economy. Ulster Bank’s PMI pointed to robust growth across the private sector in Q4 2017. The Northern Ireland Chamber of Commerce & Industry’s Quarterly Economic Survey (QES) for the same period was not quite as positive as the PMI. Nevertheless, both manufacturing and services firms reported growth in the final quarter of 2017. Overall, the performance was more encouraging for the manufacturing sector than for services firms.
NI Composite Economic Index a mixed bag – Today’s NI Composite Economic Index (NICEI) – which includes public and private sector activity – was something of a mixed bag. The NICEI, produced by NISRA, lags the QES and PMI surveys by a quarter. So, the latest figures are for Q3 2017, a period in which both the QES and PMI signalled private sector growth. However, the NICEI, both the composite index and the private sector output measures, signalled marginal declines of 0.1% q/q in Q3 2017. However, both indices recorded growth over the last year of 1.2% (NICEI) and 1.5% (private sector output).
Private sector figures skewed by JTI – The latest private sector output figures without the NICEI were skewed by the closure of the JTI tobacco plant in Ballymena. This contributed to a massive 18% q/q fall (& -39% y/y) in output within the Food, Beverages & Tobacco sector. The latter sector accounts for 22% of the Index of Industrial Production (82% of which is manufacturing). Despite growth in other industrial production and manufacturing sub-sectors, the fall in Food, Beverages and Tobacco (largely the closure of JTI) resulted in a 6.5% y/y fall in industrial output and a decrease of almost 9% in manufacturing output. These represented the fastest rates of decline in output since the global recession in 2009. Clearly, the disproportionate impact from JTI’s closure is masking strong performance elsewhere. For example, Northern Ireland’s lesser known Basic and fabricated metal products sector saw growth of 15% y/y in Q3 2017. Output within this sub-sector is now at a record high.
Snakes & Ladders – By 2016 Q4, Northern Ireland had recovered the loss in industrial production output following the recession. But output has subsequently slipped by almost 9%. Industrial production is now at its lowest level since 2010 Q4 and manufacturing has fallen to a 6½-year-low.
Manufacturing decline masks construction and services gains – The decline in manufacturing / industrial output more than offset the strong gains recorded in the services sector and the local construction industry. Private sector services output expanded by 1% q/q in Q3 2017 with growth of 2.5% y/y. The corresponding figures for the construction industry were +1.1% q/q and +11.5% y/y.
Recovery under construction –NI’s construction industry has witnessed the fastest rates of growth in output of all sectors of the economy in recent years. However, this reflects a rebound from a very low base. Construction output almost halved between 2006 Q4 and 2013 Q4. Since then, construction output has increased by 48% in less than 4 years and is currently at a 7½-year-high. Given Belfast’s crane-cluttered skyline this growth rate is perhaps not surprising. Despite this growth, however, construction activity is still just 75% of what it was back in 2006.
Service with a smile – Private services sector output hit a 9-year-high in Q3 2017. However, private sector output is still almost 5% adrift of its 2006 Q4 peak. This means that the sector has recouped just over 61% of the output lost following the recession. Some sectors within services have been performing well. The star performer has been Transport, storage, information & communication (includes ICT etc) which hit a record high in Q1 last year. Annual growth over the year to Q3 2017 has averaged over 6%. However, Northern Ireland’s Business, services and finance sector – which accounts for one-third of services output – remains a shadow of what it once was. Output remains over 30% below where it was during the property-fuelled boom in 2006.
Lost decade and rising – While the focus of attention usually relates to growth rates, it is important to consider levels of output for perspective. The phrase a ‘lost decade’ has been often quoted for numerous economies in recent years. It could certainly be applied to Northern Ireland in terms of private sector output. Indeed, it could be argued that Northern Ireland has suffered from a lost twelve years. So far, Northern Ireland’s private sector has recovered less than 60% of the output it lost during the recession. Economies such as the UK and the Republic of Ireland have recouped their lost output some time ago. The UK economy, in GDP terms, is 10% larger than it was before the recession. Northern Ireland’s private sector is producing the same level of output in value terms as it did in 2005 Q3.
The 2005 economy with more staff! – Northern Ireland has clearly not been as successful at increasing output as it has jobs. Private sector employment is at a record high –a fact that regularly features as a positive headline. But, combining our output performance with employment growth raises some concerning issues about productivity levels. Private sector jobs have increased by 68,500 (+14%) over the last 12 years to produce the same level of output as in 2005. This highlights the collapse in Northern Ireland’s productivity. In turn, this reflects the quality of jobs being created (e.g. job quality, skills levels and salary levels). Without a recovery in productivity there will not be a recovery in wage growth and improvements in standard of living. Making the Northern Ireland economy more productive again requires a greater focus on raising productivity.