When measuring performance it is important to know what success looks like. It is also necessary to have suitable benchmarks to measure progress along the way. As far as the economic recovery is concerned, getting back to pre-pandemic levels of output, activity and employment satisfies both these criteria. Earlier this week we saw that the number of employees on Northern Ireland payrolls hit a record high for the third month running having eclipsed pre-pandemic levels of employment back in June. On the face of it this looks like mission accomplished until you consider that this is flattered by furlough with 36,100 on the Job Retention Scheme as of the 31 July 2021. Furthermore, focussing on only one measure of labour market success can ignore huge failures in other areas – e.g. self-employment is down over one-quarter from its pre-COVID-19 levels.
So what about output? How is it faring?
It is perhaps worth rewinding back to what the output figures were showing over the last year or so.
2020 was a year of extremes. Record rates of decline in Q2 followed by record rates of expansion in Q3. Lockdown restrictions had the effect of turning economic activity off and on. But as the pandemic progressed, subsequent lockdowns have been less severe on economic activity than the first. Many businesses have been able to adapt and function throughout lockdowns or pivot into new markets. All sectors with the exception of construction saw steeper peak-to-trough declines in this recession than the one that followed the Global Financial Crisis (GFC). The trajectory of economic output has largely followed a bungee jump. The initial fall and rebound being the most extreme, but subsequent declines and rebounds will moderate. For example, Northern Ireland’s private sector output fell by only 2.3% q/q in Q1 2021 – a period of lockdown – which compared favourably with the massive 19.5% quarterly contraction in Q2 2020 (Lockdown 1.0).
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.
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.
Northern Ireland Residential Property Price Index Comment
Northern Ireland’s housing market has been a source of continued positivity in recent years, with housebuilding, prices, transactions and mortgage activity all at multi-year highs. Though the property market remains in recovery mode, rather than recovered, following the biggest residential property downturn in UK history.
Residential property price growth has been slowing in both the UK and Republic of Ireland markets. The latest Residential Property Price Index for Northern Ireland points to a similar trend. Residential property prices posted their first quarterly fall in two years in Q1 2019 with a 1.0% decline. Annual house price growth eased from 5.1% in Q4 2018 to a more sustainable 3.5% in Q1 2019 – a rate that remains above consumer price inflation and broadly in line with average earnings growth. Lower rates of house price inflation (2-3% p.a.) are to be welcomed.
The US economy is humming and wage pressures are building, keeping the Fed on track for another modest tightening in September. UK growth, however, remains lacklustre with manufacturing in the doldrums. A BoE rate hike appears a distant prospect.