Northern Ireland should avoid recession – but it will be close.
Jul 19, 2016
The Northern Ireland economy should avoid recession as the EU referendum result leads to a further slowdown in the UK economy - but it will be close with local economic growth falling to a forecast 0.2% in 2017. That’s according to PwC’s latest UK Economic Outlook (UKEO), published today [Tuesday 19 July 2017]
PwC says that UK growth had already eased from around 3% in 2014 to around 2% before the EU referendum, due primarily to slower global growth, but the vote to leave the EU is likely to lead to a significant further slowdown. UK GDP growth is now forecast to decelerate to around 1.6% in 2016 and 0.6% in 2017.
For Northern Ireland, that means forecast growth of around 1% 2016, falling to 0.2% in 2017, making NI the poorest-performing of the 12 UK regions, behind Scotland and Wales at 0.3% and 0.4% respectively. However, Dr Esmond Birnie, PwC chief economist in Northern Ireland warns that quarter-on-quarter GDP growth could fall to close to zero in late 2016 and early 2017:
“In our main scenario, overall UK economic activity is projected to recover gradually later in 2017 as the immediate post-referendum shock starts to fade.
“This scenario suggests that the UK and Northern Ireland would avoid recession, although there are still significant uncertainties around this view. Alternative scenarios could see overall UK GDP growth in 2017 of anywhere between +1.5% and -1%, although even this latter relatively pessimistic scenario would not be a severe recession of the kind seen in the early 1980s or in 2008-9.
“The main reason for the slowdown is projected to be a decline in business investment, particularly from overseas, while construction companies and capital goods manufacturers could also be relatively exposed to this kind of short-term cyclical slowdown. The weaker pound should also boost net exports, which should move from being a drag on overall UK GDP growth in 2015 to a positive contributor in 2017.”
PwC Main scenario for UK regional growth 2016 & 2017
Source: PwC Analysis
The UKEO says London is expected to continue to lead the regional growth rankings in 2016, expanding by around 2.2% as shown above. Most other regions are expected to expand at rates closer to the UK average of around 1.6%, but Northern Ireland is expected to lag behind somewhat with growth of around 1%.
Esmond Birnie says:
“More marked slowdowns are expected in all regions in 2017 as the effects of the vote to leave the EU come through, although the UKEO does not project negative growth in any region it’s our main scenario.
“However, Growth in London might fall to just over 1% in 2017, while it could be close to zero In Northern Ireland.”
PwC says that consumer spending growth is projected to hold up than business investment, but could still slow from previous strong rates, dropping to around 1.3% in 2017 in the UKEO main scenario. This reflects the impact of a weaker pound in pushing up import prices and squeezing the real spending power of households, as well as lower consumer confidence levels and slower jobs growth. The weaker pound should also boost net exports, however, which should move from being a drag on overall UK GDP growth in 2015 to a positive contributor in 2017.
Key Projections:
Source: PwC main scenario projections
PwC Northern Ireland regional chairman, Paul Terrington says that action by the Bank of England should help confidence and that the post-referendum economic downturn should not be anything like as severe as that following the global financial crisis of 2008-9 or indeed the deep recession of the early 1980s:
“Our main scenario projections suggests that the UK should narrowly avoid a recession over the next year, although we recognise that risks are weighted somewhat to the downside at present.
“It that forecast proves accurate, Northern Ireland should also avoid recession, although that may be a close call.
“The Northern Ireland business community needs to hold its nerve through this unsettled period, take stock of the potential impact of Brexit on their markets and operations, and make contingency plans for alternative outcomes.
“Local organisations should also look to the opportunities to offset any decline in long-term EU trade, by researching and building closer trade relationships with relatively fast growing economies like China and India and new markets like Australia and Canada.”
“Also on the upside, there some confidence measures are emerging. With a new Prime Minister in post, the UK has avoided a protracted political vacuum; there is growing optimism that the government is moving to develop policies around people, mobility and trade.
“The Prime Minister has also undertaken to consult all regions of the UK on how a Brexit would be negotiated and delivered and that offers the potential for the Executive to lobby strongly in respect of issues that directly impact on Northern Ireland, its businesses and its people.”
Ends.
Download PwC-UK Economic Outlook_July 2016
Contact details
Email: Esmond Birnie
Tel: +44 (0)28 9041 5808
Email: John Compton
Tel: +44 (0)28 9041 5663
