One direction. Northern Ireland’s house price recovery is six-years old. For twenty-three of the last twenty-five quarters residential property prices have gone one way – up! Despite this significant run of steady price rises, less than one-third of the 57% drop in prices that occurred between Q3 2007 and Q1 2013 has been recouped so far. As of Q2 2019, local house prices were still 39% below Q3 2007’s ‘freak peak’.Continue reading
Will it? Won’t it? On Friday we learned that, after delivering a strong first quarter performance, UK GDP contracted by 0.2% in the three months to June. This marks the first outright decline in economic activity since 2012 and puts the UK uncomfortably close to ‘technical recession’ territory just as global growth is faltering.Continue reading
Northern Ireland’s private sector reported a marked deterioration in business conditions in the second quarter. July’s PMI survey suggests more of the same at the start of the third quarter as output, orders, exports and employment continued to fall last month. The rate of decline across all of these indicators did ease in July relative to June. However, the pace of contraction in output, orders and exports remained significant with output and orders falling at a faster rate than in any other UK region.
Firms notched up their seventh successive monthly fall in staffing levels; albeit the pace of job losses in the latest survey was relatively modest. Indeed, a number of respondents’ efforts to hire were thwarted by a lack of suitable staff. Clearly the lack of supply of workers remains a key issue in the labour market rather than simply waning demand.
It won’t surprise anyone to hear that 2019 has been a year of decline for the retail sector. However, there are actually now some signs that the rapid decline in sales is stabilising. Given the further depreciation in sterling, cross-border shopping is likely to play a more prominent role in the period ahead.
Manufacturing has seen a sharp reversal of fortunes in recent months with the sector posting the sharpest rates of decline in jobs, orders and output of the four sectors. Last month manufacturers reported their steepest fall in output since April 2009. The ongoing fog of Brexit uncertainty is one contributory factor alongside a global manufacturing slowdown.
Elsewhere, services firms, outside of retail, recorded a deterioration in business conditions in July. Significantly, services orders have been falling at an accelerating rate in each of the last five months. Indeed, July saw orders contract at the fastest rate in over seven-and-a-half years. It is a similar story for the construction industry with orders lurching lower again for the eleventh month running.
The employment picture remains the most positive aspect of the latest survey. But it is well known that the labour market is a lagging indicator of economic conditions. Shrinking order books, Brexit uncertainty and the ramping up of tensions between China and the US provide a formidable environment for local firms. Business conditions could well get worse before they start getting better.
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The BoE’s latest Inflation Report downgraded its growth forecasts but continues to predict “gradual” UK rate hikes assuming a smooth Brexit. In contrast, the Federal Reserve lowered the funds rate 0.25% to 2.25%, its first reduction since 2008. US president Trump’s announcement of a 10% tariff increase on the remaining $300bn of Chinese imports and China’s retaliation adds to global trade concerns, increasing the pressure for further Fed moves soon.
A report, which acts as a barometer for the local jobs market indicates that although job hiring is slowing slightly, the IT sector is showing no sign of a slump. Belfast remains a key location for global companies to invest and have access to a talented workforce.
As the new Prime Minister prepares to enter Downing Street, he can draw some comfort from data indicating that consumers, buoyed by the strong labour market, are keeping the economy ticking over. But the new PM inherits a big ‘to do’ list, from resolving the Brexit impasse to addressing concerns over global growth prospects.
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.
Imagine you are a Dragons’ Den judge. The CEO of (a fictional) ‘Grey Enterprises’ is pitching for investment to enable further expansion in its consumer goods business. The firm’s customer base (the over 65s) has grown by one-quarter over the last decade with 1 in 6 of the Northern Ireland population using the product.
The latest output data for May showed a substantial rebound and raised hopes that we’ll avoid a contraction in UK GDP in Q2. Meanwhile expectations mount that US talk of cutting interest rates will turn to action by the end of the month.
Bounce back. In May UK GDP expanded by 0.3%, largely reversing April’s 0.4% decline. On a three-month rolling basis GDP increased by 0.3% in the period March to May, but this represents a slowdown compared to Q1 2019 due largely to an unwinding of the inventory-led rise in growth ahead of the anticipated EU exit on March 29th. Two main factors accounted for the rebound in May: (1) manufacturing (+1.4%) and (2) construction (0.6%) – both recovered from declines in April. All this suggests recent fears of a contraction in GDP in Q2 2019 should prove wide of the mark.
Deterioration. Business conditions took a turn for the worse across most UK regions according to the latest monthly PMI surveys. Only Wales, Scotland and the East reported faster rates of output growth in June. Subdued rates of growth and contraction were the key themes. Northern Ireland witnessed the steepest rates of decline in output, orders and jobs. A similar result was evident in the North East and the East Midlands whilst the Midlands (East & West) saw output fall at its fastest rate in over a decade. The one bright spot was rising employment in most UK regions, led by Yorkshire and Humber.
Come what may. The Bank of England’s latest Financial Stability Report (FSR) revealed its assessment that the balance of risks is broadly unchanged from November. Cooling consumer credit growth and a quiet housing market aren’t troubling policymakers. But it thinks there has been an increase in the likelihood of a no-deal Brexit, albeit firms and governments are now better prepared. Looking much further out, the Bank of England will stress test the banking system on the risks of different climate change scenarios in 2021.
Green with envy. You need to be an accounting nerd to make sense of the Irish GDP figures. Ignoring the China-esque headline GDP growth rate of over 6%, the Republic of Ireland’s economy is growing at an underlying pace of around 3% y/y in Q1. Nevertheless, this is still well above the corresponding rates of 1.8% and 1.2% for the UK and the Eurozone respectively. Like, both the UK and the Eurozone, however, Ireland’s economy is feeling the effects of slower global growth. The pace of expansion has eased from the impressive 4.5% growth rate last year. Brexit developments, particularly a no-deal scenario, are expected to lead to a further loss of momentum.
40,000. Last week’s Department for the Economy paper on the implications of a ‘no deal’ Brexit caused a media stir. Such an outcome would have a “profound and long lasting impact on Northern Ireland’s economy and society”. Attention focussed on the potential for a sharp increase in unemployment, with at least 40,000 jobs at risk, based on EU export exposure. By way of context, 41,640 jobs were lost in the last recession. A lot of what was presented was not new but rather a collation and an update of existing evidence. But with the risks of ‘no deal’ elevated, the same information is now attracting a much bigger audience than before.
Light at the end of the tunnel? With Brexit looming large, it would be premature to call an end to the UK housing market slowdown that has taken hold recently. Yet reports from surveyors are cautiously upbeat about the state of the market. In NI, whilst activity appeared to flatline in June, NI surveyors are the most likely in the UK to say that house prices are rising. And expectations that both sale prices and transactions volumes will be higher in 12 months are becoming increasingly common in the surveying community in the UK, including in Northern Ireland.
Generation rent. Housing costs are the most significant monthly outgoing. But as home-ownership is a minority sport for twenty and thirty somethings, rents matter most to them. Northern Ireland’s average monthly rent hit £616 in 2018 (£693 in Belfast)- a rise of 3.4% and almost a full percentage point above the annual rate of CPI. Most council areas posted rent rises below the annual cost of living increase. But Mid Ulster (+6.5%), Belfast (+5.4%) and Causeway Coast & Glens (+4.4%) recorded inflation busting gains. Upward pressure on rents is being supported by a squeeze on supply. Rental transactions have fallen in each of the last five years and by almost one-third since 2013. Enter ‘Build to Rent’ entrepreneurs?
Easing mode. Federal Reserve Chair Jay Powell’s latest semi-annual testimony before Congress was dovish, rubber stamping market expectations of a 25bp funds rate cut in July. Mr Powell highlighted “cross currents” facing the US economy, notably rising trade tensions and increased global growth concerns. He warned “there is a risk that low inflation will be even more persistent than we currently expect”. The minutes of the Fed’s June meeting revealed that “many participants” supported a “more accommodating” stance. The next move for US rates looks to be down.
Wrong way. It’s not the direction of travel that was hoped for. Well, for one side in the trade war at least. China’s trade surplus with the US reached its highest level of the year so far in June at $29.9bn. Imports from the US fell over 30%y/y while exports to the US were down 7.8%. It could be that the tariffs are hurting China’s domestic economy, putting a brake on imports. But the softness in the global economy will be a factor, too. Supply chains are global. Weaker export demand inevitably translates into weaker import demand as the need for raw materials and intermediate components diminishes.