Stronger than expected. Two surveys for the second quarter of 2019 revealed surprisingly strong output performance for the industrial (mostly manufacturing) and services sectors. The latter signalled a 0.8% q/q rise in Q2 which marked the fastest pace of growth  in output in five quarters.  However, this increase simply reverses the fall in the previous quarter.  As a result, Northern Ireland’s service activity has been flat for the first half of the year. Furthermore, the rate of growth on a year-on-year basis (Q2 2019 relative to Q2 2018) is a very pedestrian rate of growth (+0.5%) for the economy’s largest sector.

Tourism boost. The pick-up in service sector activity was largely driven by the consumer sensitive sector – Wholesale and retail trade; repair of motor vehicles and motor cycles; accommodation and food service. This is effectively retail and the tourism / hospitality sectors. While this sector recorded no growth in Q2 the equivalent sector for Northern Ireland surged by a whopping 2.2% q/q. This marked the third largest quarterly rise for this sector.  Northern Ireland’s superior performance is likely to have been due to the continued boom from the tourism industry. The build-up for The Open golf tournament in July undoubtedly provided a positive boost for the local hospitality sector. Northern Ireland’s Business Services and Finance sector also posted encouraging rates of growth (0.6% q/q & 2.8% y/y) which exceeded the UK average.  The other two services sub-sectors:  Transport, Storage, Information and Communication; and Other Services both recorded no growth over the quarter and declines relative to a year ago. Indeed the former posted its sharpest year-on-year decline (-6.5% y/y) in over thirteen years.

More highs and lows. The Index of Production release was perhaps more interesting with a number of manufacturing industries posting multi-year highs and lows. For example, Northern Ireland’s Textile & textile products sector saw output soar by a spectacular 35% y/y to a 14-year high in Q2.  Conversely,  the manufacture of rubber, plastic and other non-metallic mineral products slipped to a fresh series low in Q2 2019.

Overall, Northern Ireland’s manufacturing output increased by a punchy 1.0% q/q and 3.6% y/y.  This contrasted favourably with the UK which reported declines in output (-2.3% q/q & -1.0% y/y) and performance was much stronger than anticipated.

Still wound up by Brexit. Stockpiling ahead of the initial Brexit deadline of the 29^th March was a factor behind significant rates of growth in Q1. For example, a number of manufacturing sub-sectors posted quarterly growth in excess of 20%!!  It had been anticipated that there could be significant falls in Q2 reflecting a winding down of these stockpiles. However, the anticipated whipsaw in stockpiling hasn’t occurred to the same degree as in the UK. Some sectors such as the manufacture of chemicals and pharmaceutical products and Basic and fabricated metal products did see sizeable falls of around 5% q/q in Q2.  However, this represented only a modest unwinding of the stockpiling surge that occurred on the run-up to the 29^th March.

Slump deferred not postponed. Other manufacturing surveys point to a deterioration in business conditions in Q3. Implying that the anticipated slump in manufacturing output may be deferred until Q3. It remains to be seen whether there will be further ramping up of stockpiles ahead of the new 31^st October Brexit deadline. Or, as appears to be the case in Q2, that manufacturing firms continue to maintain relatively high levels of output / stock.  But a wider downturn in global manufacturing reflects that underlying demand irrespective of Brexit disruption is waning.