Official statistics have finally revealed the scale of the much talked about economic impact on two key parts of the Northern Ireland economy. Following news earlier in the week that Northern Ireland posted its first quarterly decline in employee jobs in four-and-a-half years, figures today show a staggering slump in output. Both the Index of Services and Index of Production posted record rates of decline. Like a game of snakes and ladders, the COVID-19 pandemic has acted as a big snake taking industrial and services output back to square one or new series lows.
Technical recession knocked back a quarter? – Prior to today’s Q2 statistical releases, Northern Ireland’s services sector had posted three successive quarters of contraction in output from Q3 2019 to Q1 2020. The quarterly fall in Q1 2020 was a record decline (-6.5%) at the time. Revisions to the earlier data now reveal an expansion in Q3 which now suggests Northern Ireland’s official ‘technical recession’ will have begun in Q4 2019 and not Q3. Services output in Q2 eclipsed the previous quarters record decline slumping 17.7% q/q and 23.5% y/y. While these rates of contraction were shocking they were not as bad as had been feared, the fact that activity has fallen by one-quarter in just six months is phenomenal. This takes activity back to a new record low with Q2 services output 19% below the level when the series began in Q1 2005.
All for one and one for a fall -All four of the services sub-sectors saw output decline. Unlike during the last recession (Global Financial Crisis), Business Services and Finance posted the smallest decrease in output on a quarterly (-7.6% q/q) and year-on-year basis (-19.6% y/y). The pace of decline in Business Services & Finance output is similar to in Q3/Q4 2008 (-20.1% y/y). However, the level of activity has still slumped to a record low. Transport, Storage, Information and Communication is something of a mixed bag of sub-sectors who were adversely impacted by the lockdown and those that were largely unaffected. For example, this sub-sector includes logistics, air, road and sea transport alongside the relatively shielded ICT sector. Transport, Storage, Information and Communication (TSIC) saw output shrink by 16.2% q/q and 19.8% y/y. While these represent record rates of decline, TSIC was the only services sector not to see output plumb new record lows. Instead, output has fallen back to a seven-year low.
Local outperformance – Wholesale and Retail Trade; repair of motor vehicles and motorcycles; accommodation and food service sector (largely retail & hospitality) is the largest services sector. Output within the sector fell less than anticipated, albeit they were still record rates of decline of 16.9% q/q and 22% y/y. The quarterly decline was only half of that recorded for the UK (-33.2% q/q). Nevertheless, NI’s slump in output during the second quarter takes activity back to a series low and a hefty 17% below Q1 2005 levels.
The big event – The mother of all declines occurred within the ‘Other Services’ category. This sub-sector accounts for one-sixth of private sector services. Output plunged by a whopping 38.9% q/q and almost halved relative to Q2 2019 (-46.5%). This means output is 40% lower than when the data series first began 15½ years ago!! Other services includes those activities most impacted from the need to socially distance. It includes tourism related services such as leisure, arts and entertainment alongside personal services such as beauty salons, nail bars, dentists, physiotherapists and tattoo parlours.
Declines on an industrial scale – Like services activity, industrial production output fell in all four of the main sectors: Manufacturing (-14.6% q/q, -21.8% y/y); Water supply, sewerage and waste management (-19.2% q/q, -28.3% y/y); Electricity, gas, steam and air conditioning supply (-7.2% q/q, -14.4% y/y) and Mining & Quarrying (-20.0% q/q, -32.7% y/y). Manufacturing is the most significant component of industrial production accounting for some 83% of output. Manufacturing output fell by 14.6% q/q and 21.8% y/y. These record rates of decline compare with -7.0% q/q and -15% y/y during the depths of the last recession in Q4 2008.
On its own – There was one standout sector within manufacturing that managed to post quarterly growth in Q2 in the midst of Northern Ireland’s biggest contraction on record. Not surprising, given the health emergency, it was Chemicals & Pharmaceutical Products. This sub-sector, which includes Randox, that produces COVID-19 testing kits, saw output rise by 1.3% q/q. The next best performer was Textiles and related products (-3.4% q/q & -9.6% y/y). A number of firms within this sector have successfully pivoted to the production of PPE (personal protective equipment – clothing). Food & drink producers have also fared better than most with output falling by just 5.5% q/q and 5.9% y/y.
Double-digit – All other manufacturing sub-sectors posted double-digit q/q declines. Transport Equipment (incl. Bombardier) saw output slump to a near 11-year low with a 38.5% q/q fall. Output is down over half (-53.4%) relative to Q2 2019. Basic & Fabricated Metal Products saw output fall by 35.9% q/q and -41.2% y/y. A number of sub-sectors saw output return to series lows including: Rubber plastic & non-metallic mineral products (-19.1% q/q & -19.0% y/y), Wood & Paper Products (-19.3% q/q & y/y) and Computer, electronic, electrical & optical products e.g. Seagate (-18.8% q/q & -31.8% y/y). The Machinery & Equipment engineering sector posted declines of 24.9% q/q and -31.4% y/y – taking output to its lowest level since Q3 2010.
Snakes and Ladders – Northern Ireland’s manufacturing and services sectors have seen unprecedented rates of decline in output linked to the COVID-19 pandemic. Within these industries a recovery has already begun. We can expect record rates of expansion in Q3 albeit this will be coming off multi-year or record lows. Climbing out of the huge economic hole created by the pandemic will be measured in years not quarters or months. A long bumpy road lies ahead.