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NI growth continues to slow

Apr 26, 2018
The Northern Ireland economy started the year with growth continuing to slow and domestic (UK) sales balances at their lowest level since 2013. These findings form part of the latest Quarterly Economic Survey (QES) published by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and BDO Northern Ireland.

The survey, which covers the first quarter of 2018, also reveals that Northern Ireland’s regional position is very weak, ranking lowest across the UK regions for most key balances. The manufacturing sector is a particular standout with only oneof the 14 key balances ranking above the UK average.

Export balances remain positive in manufacturing (although lowest of the UK regions) while in services, export balances are negative. The survey also reports that one in four members have made changes to their business model due to Brexit and 76% are experiencing pressures to raise wages in their business or organisation.

Manufacturing

Growth in the manufacturing sector showed definite signs of slowdown during Q1 2018. Sales in the domestic (UK) economy slowed considerably with more manufacturers expecting UK sales to fall than rise over the next three months. Export balances weakened from a strong regional position in Q4 2017. Employment expectations have been falling since start of 2017 and fewer manufacturers are trying to recruit (48% versus 64% Q4 2017). The sector’s cash-flow position is extremely weak in Q1 with the lowest balance on record (-33% points).

Services

The service sector also showed signs of sluggish growth. Almost all key balances are positive, with five out of 14 above the UK average, suggesting some growth. However, turnover and employment balances have been falling. The domestic sales and orders balances continued the downward trend experienced since Q4 2016. Northern Ireland remains the only UK region with negative export balances (export sales -2% versus +20% UK). Employment expectations are subdued and the sector’s cash-flow position is also very weak. Pressure to raise prices in Northern Ireland is the highest across UK regions.

Business confidence

Businesses are less confident around turnover and profitability growth over the next 12 months. Manufacturing confidence has taken a particular hit during Q1 2018 with a balance of +8% expecting turnover growth during 2018 compared to +46% for the same quarter last year. Profitability is a real concern with a balance of -9% of manufacturers and +7% of services expecting profitability to improve over the next 12 months.

Brexit Watch

The latest Brexit Watch suggests that one in four members have made changes to their business model as a result of the EU referendum. Almost one in 10 have established a presence outside Northern Ireland, with a further 20% considering doing so. Others have changed, or are considering changing, their trade partners and suppliers, recruitment plans and/or target markets. When asked to provide one question or concern to put to the UK government in its negotiations with the EU on Brexit, concerns largely focused on cross-border trade issues between Northern Ireland and the Republic of Ireland, particularly the border, along with issues around governance, the impact on free movement of labour and trade tariffs.

Wage prospects

Members were asked about wage pressures and prospects for pay rises during 2018. Most members are experiencing pressure to raise wages in their business/organisation with over half (52%) facing some pressure and one quarter (24%) facing significant pressure.

Key issues include competition to retain existing and attract new staff along with workforce pressures due to cost of living increases. One in three members (34%) state that they are facing growing competition from other employers to keep staff.

Wage pressures are greatest in recruiting and retaining skilled workers with 41% of members experiencing significant pressure to offer higher wages to this group. Around two-thirds of members are expecting to award some form of pay rise in 2018 with 34% expect to award pay rises of 2% plus. However, 7% of members expect wages to fall over the next 12 months.
 
Brian Murphy, Managing Partner at BDO Northern Ireland, said: "Unemployment in Northern Ireland is currently at its lowest rate in a decade, and this coupled with the findings of this report, that local businesses are still recruiting, is a demonstrable indication of the confidence of local businesses to continue to grow despite the challenges that exist.

"The absence of the NI Executive and the lack of clarity regarding the arrangements for Brexit is clearly a matter of concern for many. However, this report shows there is also an increase in investment intentions by local businesses. This is a welcome sign that despite the current uncertainty at a government level, businesses in Northern Ireland will persevere and plan for future success."

Source: Northern Ireland Chamber.