The latest Northern Ireland Composite Economic Index confirmed that the local economy notched up its sixth successive quarter of growth in Q1 2019. The 0.3% q/q rise marked an improvement on Q4 2018’s lacklustre growth rate of just 0.1%. While the rate of growth in the latest quarter was perhaps stronger than expected, it still represents a rather weak rate of expansion. Meanwhile the annual rate of growth slowed from 1.8% y/y in Q4 to 1.5% in Q1 2019.
Private sector services (-0.4% q/q) – the largest sector of the economy – was the only sector to spoil the growth party in Q1. Industrial production (+1.7% q/q), the public sector (+0.2% q/q) and construction (+1.5% q/q) all posted quarterly gains. Industrial production’s performance (which is mostly manufacturing) was flattered by a surge in stockpiling ahead of the original Brexit date of 29 March. As payback, a significant decline in manufacturing output is anticipated in Q2.
A surge in housing output (primarily house building) and infrastructure projects boosted the construction sector’s growth rate to 1.5% q/q and 7.7% y/y. It should be noted that this refers to activity occurring in Northern Ireland only. A significant proportion of the workloads of Northern Ireland’s largest construction firms are in Great Britain. It would appear that the local market is perhaps holding up better than the GB market.
It is noted that the Composite Economic Index has reached a ten-and-a-half-year high but the local economy still hasn’t recovered the full loss of output that occurred during the last downturn. The NICEI is still 4.4% below the pre-recession peak of Q2 2007. Similarly, private sector output remains over 4% below its high recorded almost twelve years ago.
This poor output growth performance contrasts with Northern Ireland’s robust rates of job creation. The number of private sector jobs has increased by 14% since Q2 2007. But despite the efforts of an additional 71,000 jobs, our private sector is still producing over 4% less output in monetary terms than it was almost twelve years ago. This highlights issues of job quality, poor productivity and low wages.
Northern Ireland’s economy and private sector started 2019 in expansion mode. If current rates of growth continued, it would still take until 2022 for Northern Ireland to see a return to its pre-recession output. But is uninterrupted growth over this period likely? Focussing on the year ahead, maintaining growth will be a challenge. Business conditions at home and abroad have deteriorated markedly since Q1. Indeed the Ulster Bank Northern Ireland PMI signalled a contraction in private sector output in Q2. In addition, the potential for a ‘no-deal’ Brexit would almost certainly derail growth in Q4.