The year of pent-up demand and pent-up problems

January 2021 represents more than just the start of a new year. It marks the new post Brexit-era, and it brings us a step closer to a post-Covid era with the ramping up of the vaccine roll out. In some respects, this month therefore marks a turning point for Northern Ireland and our economy, and a time when we should really take stock of where we are and where we are going in the future. 

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Economy to grow 5% in 2021 but recovery will be a squashed W

Record rebound – Northern Ireland’s economy witnessed a record rate of expansion during the third quarter with output rising by 15.5% q/q. That is according to NI’s Composite Economic Index (NICEI) which is the closest statistic to GDP that we have. Q3’s record rebound followed four successive quarters of contraction and a record rate of decline of 13.7% q/q in Q2. The pandemic has necessitated the introduction of lockdowns which switched off large parts of economic activity.  Conversely, the lifting of restrictions in Q3 led to a reopening of the economy and a subsequent surge in economic activity. 

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Biggest drop in new car sales since WW2

Biggest annual decline in peacetime – 2020 has been a year of record rates of decline on a number fronts, not least within the car industry. Brexit and lockdowns were two headwinds for the sector that dampened demand. New UK car sales slumped by 29% last year which represented the steepest annual fall since World War II (1943) with sales volumes plumbing their lowest level since 1992.  2020 marked the fourth consecutive year of declining car sales in the UK with a cumulative decline of 40% (1.1 million cars) since 2016’s peak. Electric vehicle sales have been one bright spot at the expense of petrol and diesel engine vehicles. Battery electric vehicles and plug-in hybrid electric vehicles saw sales soar by 186% and 91% respectively last year. As a result, electric vehicles now account for 1 in 10 of all new car sales, up from 1 in 30 in 2019.

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What goes down must go up!

2020 has been the year of the unprecedented rate of decline. New car sales, property transactions, housebuilding, manufacturing output, services activity or tourist numbers have all plunged on a scale that we have never seen before. Lockdown restrictions have been responsible for this ‘switching off’ of economic activity and this was most pronounced in the second quarter. When swathes of the economy are shutdown, the inevitable consequence of the subsequent lifting of restrictions means output / activity can go only one way – UP!

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Green light at the end of the tunnel?

You could say that the less said about 2020 the better. But even when we look forward to 2021, in some respects, it’s 2020 all over again. This time last year, we were looking forward to the Olympics and Euro 2020. Once again this year, we’re looking forward to the Olympics and the Euro 2020. But that said, in 2021 there are going to be a whole series of new trends that impact upon economies, countries and businesses. So, what are they?

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Emergency, Emergency, Emergency

Rishi Sunak hasn’t yet completed a year as Chancellor but he is a crisis veteran. The word ‘emergency’ featured four times in Sunak’s speech in which he outlined the UK’s three emergencies. These are health, economic and fiscal. “Our health emergency is not yet over.  And our economic emergency has only just begun”.  

Recent developments on the vaccine front have provided a much needed shot in the arm for optimism for 2021. In turn, that has filtered through to the economic forecasts. Nevertheless, there is no economic vaccine for the deepest recession in 300 years, just painkillers.

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Earnings season: how COVID is impacting on what we earn and the jobs we do

We’re currently in what they call corporate earnings season and we’re getting a flavour of how COVID has been hitting big business. Some companies have been doing well whilst others have struggled. Marks & Spencer on the one hand has seen its first quarterly loss since it was listed on the stock market 94 years ago. By contrast, the likes of Amazon has been generating record earnings as its business model is well suited to the pandemic.

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Eat. Sleep. 3Rs. Repeat?

For decades, the most important basic skills taught in schools were the Three “Rs” – reading , (w)riting and ‘rithmetic. In recent decades, becoming ICT literate has been added to these functional skills of literacy and numeracy. While the texting and Xbox generation have become adept at embracing technology, more so than older generations, the same is not necessarily true for literacy and numeracy. Too many of our young people leave school without mastering these basic skills. This leaves them ill equipped for the world of work and dealing with life in general. Are we doing enough to address this? Every August (bar the one just passed) social media is awash with stories on results day. Best grades ever etc. You would be forgiven for thinking we had a world class education system. That holds true for some but it is a lousy system for a significant number of others. Northern Ireland society’s fixation with school league tables breeds a one-dimensional view of educational performance. Meanwhile, Northern Ireland continues to churn out a higher proportion of school leavers without any qualifications than any other UK region. This fact receives little airtime but we can’t sweep it under the carpet.  We have an unusually high tolerance threshold for this failure in our education system. This is surprising when you consider the cost associated with the social problems that flow from these sub-optimal education outcomes.

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Pent-up demand has been and gone?

Comment on today’s SMMT Northern Ireland New Car Sales figures for September 2020.

Northern Ireland’s new car sales recovery appears to have run out of gas at the end of the third quarter. Local showrooms witnessed a 6% y/y rise in new vehicle sales in Q3 which represented the first quarterly rise since Q2 2019.  However, this was driven by sales outperformance in July (+ 17% y/y) and August (+6.6% y/y). Dealers sold 5,010 new cars in September, 2.5% fewer than the same month a year ago.  Indeed, last month’s sales represented the weakest September since the SMMT series began. This suggests that the pent-up demand evident within the July and August figures may have been and gone. A few months of post-lockdown outperformance had been expected, but this upswing now seems to be even shorter and more subdued than originally anticipated. 

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