Posted on Friday 11 January 2019 by Ulster Business
It's already the New Year and economist John Simpson examines what's facing the Northern Ireland business community in the next 12 months
The early weeks and months of 2019 pose more difficult prospects for managing the economy and maintaining and boosting business continuity than key decision makers would either wish for or normally expect. In addition to the uncertainties of managing the economy, which face the Government, there is a huge element of uncertainty about the reliability of the conventional economic forecasts. How disruptive will be the consequences of Brexit implementation (or non-implementation)?
Northern Ireland goes into 2019 with an economy that is growing, but growing only very slowly. While the UK economy has recovered the output levels lost during the recession of the past decade, Northern Ireland in 2017-18 still has overall output 5% lower than in 2007. In contrast, the Irish economy has regained a rate of economic growth that is better than the UK and compares well with the EU average.
There is now an emerging picture of the UK economy growing more slowly than the EU average and, within the UK, Northern Ireland has one of the slowest regional improvements, lagging behind the rest of the UK. The international prospects for 2019 are now forecast to be less expansionary than last year and the OECD points to slower trade growth in 2020 linked to disruption of international trade partly linked with the more restrictive trade policies of the US and also to tightening changes in monetary and fiscal policies.
Northern Ireland’s slower growth is set to continue. Political instability and Brexit uncertainties continue to be a concern. The most recent annual business enquiry, reporting on the outcome in 2017, shows the stark contrasts. In 2017, the non-financial business economy here expanded at a rate of 0.6%: the rate for the UK was 5.6%. All this in the run up to the final (as yet not finalised, as this is written) Brexit deal which is widely expected to have a further initial adverse impact and, later, may go either way to give a boost or restrain, further ahead.
Brexit, in whatever form it eventually takes, adds a considerable degree of uncertainty. The conventional models to anticipate how the economy will behave are attracting a degree of scepticism well beyond just the margin of error that might be expected. When otherwise well established and well understood agencies such as the Office of Budget Responsibility and the Bank of England attract ill-informed criticism, usually by critics who have little understanding of the inter-action of the main economic variables and the professional competence of the authors, the consequence is a lack of rational measured influence.
Critical political comments on prospects for the economy in 2019 are heavily discounting the negative assessments. As the year evolves, the answer to the non-professional critics will lie in the evidence as the unfolding trends confirm that pessimism about the impact of Brexit is well merited.
At the risk of being challenged, if the conclusion proves misplaced, the prospects for Northern Ireland in 2019 are not reassuring.
In the opening days of 2019, if business decisions can be postponed, chances are that they will. Writing in December for an analysis of business prospects in the following year is, this time, more hazardous than any other recent period. No matter what decisions are made in Westminster, each month in 2019 will reveal a new set of influences each, in different ways, recalibrating the economic arithmetic for the months ahead.
The real cautionary ideal would be to ‘lock the doors and keep everything inside’ until the external economic environment settled down. Of course that would make a risky situation even riskier. Business managers must manage their business and ‘locking the doors’ is a guaranteed crisis or collapse. Businesses will keep trading, responding to changing market pressures, and hoping that the unexpected economic and political shocks are manageable.
The least complicated and most reliable basis for decision making in the early part of 2019 is that there continues to be a major degree of uncertainty about how the economy will respond to events, some of which may have diverse implications. Decisions can often be readily postponed. Delay can be less stressful than anticipation of the uncertain.
The critical uncertainties include:
The final form of Brexit to be agreed by the UK Government and the EU?
Have the exchange rates for the pound and euro stabilised?
How will the Bank of England respond: base rate could further increase?
After Brexit, how will the UK Chancellor respond in the next Budget?
The answers to these uncertainties are critically important for the UK and, specifically, Northern Ireland. To a significant degree, people in Northern Ireland are not in a position to set the answers. UK politics will be influential. However, that is not an excuse to argue that all responsibility lies outside local control.
How will the Northern Ireland institutions respond?
If there is still no devolved Executive, the ‘no decision’ making drift will be an ever increasing negative influence. If, perchance, the Executive is reformed, how long will it take to regain lost momentum? Capital budgets in particular have slowed gradually as old contracts were finished. New contracts will take time to move from approval ‘to spades in the ground’.
Even more critical, the private sector of the economy may be disappointed as domestic consumers continue to take a precautionary stance as they react to an increase in job insecurity and take a more pessimistic view of their expenditure needs.
The prospects for 2019 can be summed up either as challenges or opportunities awaiting sensible momentum. Can the negative Brexit messages give way to a more widely supported Brexit settlement? Can the negative impact of the local political stand-points be by-passed as the evidence of mutual gain from an agreed and restored Executive are realised? Is there a will to introduce a constructive programme for Government which really puts the economy (and better incomes from a more productive society) first?
The economic forecasters have good reason for their warnings of a post-Brexit bump. Even critics of the forecasters will have to accept that pervasive and persuasive logic must be acknowledged. It is time to ‘batten down the hatches’ and persevere.