NICEP publishes Autumn 2014 Outlook at First Trust Bank Business Breakfast
‘The Northern Ireland Assembly’s objective to rebalance the economy is happening by default, as the local economy has enjoyed a broad based recovery both sectorally and geographically.’ That was a core message from the Northern Ireland Centre for Economic Policy (NICEP) speaking at the launch of their Autumn 2014 Outlook report at a recent First Trust Bank business briefing held in the MAC, Belfast. The event was attended by over 100 business leaders from across Northern Ireland and included a discussion around some of the key findings from the report.
The report notes that 14 of the 19 sub-sectors in the economy have seen employment stabilise or grow in the last 12 months while unemployment has fallen across all 26 district council areas. Against this backdrop NICEP are predicting that the economy will grow by 2.2% this year (2014), but experience lower growth of 1.9 % next year. While the broad nature of this recovery is welcome, the report cautions that it will serve to provide some protection to the economic challenges ahead, in particular further reductions in public sector spending and rising interest rates.
The report notes that one of the defining features of this economic recovery has been its reliance on private sector growth. Since the low point in early 2012, the private sector has accounted for almost 70% of the 25,500 net new jobs created to date. Looking forward, NICEP forecasts approximately 19,800 net new jobs by 2018 and given the environment of austerity, believes these jobs will be almost entirely created in the in thep rivate sector.
Speaking about the trends, Gareth Hetherington, Associate Director at NICEP said:
“With the welcome growth in the private sector and the current and impending cuts in public spending, the NI Assembly’s objective to re-balance the economy is happening by default. The headline economic data for Northern Ireland remains positive with employment is growing, unemployment falling and business surveys reporting higher levels of confidence and growing order books. However, economic performance in 2014 is likely to be the high watermark in the current economic cycle. Reductions in public sector spending, rising interest rates and significant economic headwinds in the Eurozone will all impact growth prospects over the next 2 to 3 years.”
Scale of austerity becoming clearer
NICEP believes the scale and likely impact of austerity cuts have now become clearer. UK Central Government expenditure is forecast to fall by approximately £29 billion (9%) between 2014/15 and 2018/19. Similar to the NI Executive, the UK Government has pledged to protect the health budget and given its size, this places a much more significant burden on other Government Departments. Although the specific impact on Northern Ireland has yet to be determined, it is likely that it will be significantly greater than the Executive has experienced to date. Northern Ireland is fortunate that austerity is occurring against the backdrop of a growing economy, in contrast to many other countries where austerity was being implemented at the same time as a private sector recession.
Gareth Hetherington said: “We have been talking the austerity talk for the last 4 years, but most people don’t realise that we are only starting the austerity walk. This is in stark contrast to our neighbours in the Republic of Ireland or Local Government in GB who have already travelled a significant part of that journey.”
Everything on the table
In tackling the reduced funding from Westminster , NICEP believes it will require some difficult decisions. It notes that NI could follow the Scandinavian model of high taxes and a large public sector or the US model of lower taxes and smaller public sector, but cannot have the best of both systems.
Difficult choices will need to be made and some examples might include:
prescription charges to fund higher health spending; water charges to pay for a more generous welfare system; reduced economic development grants to pay for lower Corporation Tax; or lower public sector pay to minimise public sector job losses.
The report argues that we must also look at the most cost effective way of delivering public services and that everything must be on the table, including the potential role for NI’s thriving social economy sector to work with Government to deliver public sector services.
Gareth Hetherington said: “Maintaining the level and quality of public services is going to be the key challenge in an environment where budgets are being reduced. Therefore we must be open minded in terms of how our public services are delivered. Moving forward the primary focus must be on how well services are delivered and not who delivers them.”
Responding to the key findings from the report, Des Moore, Head of First Trust Bank said:
“The report highlights a story of contrasting fortunes between the private and public sectors here. While it is very welcome to see the return in confidence and performance within the private sector, something which resonates with our own customer base, we have to be mindful of the potential impact of continued austerity on the overall recovery. We are currently faced with some difficult decisions and a delicate balancing act if we are to stabilise the economic growth and achieve the rebalanced economy that we clearly need. What is required more than ever is a strong partnership between the public, private and social economy sectors to deliver a sustainable economic future.”