Headlines last week indicated that the Northern Ireland economy had contracted over the last quarter, with initial estimates indicating economic output had contracted 0.1%.
I am not an economist, but something strikes me as wrong with that. My impression, in business myself, is that discretionary spending is rising in NI, despite the obvious uncertainty of closures in the retail sector and inevitable (and frankly necessary) public sector job losses.
A few thoughts on what may be wrong.
Firstly, the quarter concerned was the first which saw significant exits from the public sector (and, in any case, incorporated part of the summer break when many people are away), thus reducing the overall “output” figure via what is, in fact, a particular (and, in the long term, wise) adjustment.
Secondly, the figure is a comparison with a previous quarter in which areas such as transport equipment were astonishingly strong. It is to be predicted that such strength would not be repeated.
Thirdly, there is a geographical problem. At the moment, construction in the UK is skewed towards the London area, and any construction work there goes on to the London area figure – even if carried out by a Northern Irish firm which will “repatriate” the profits and by Northern Irish workers who will bring most of the money earned there home.
That final point also ties to a further reality that rising property prices often see a rise in confidence and spending which has no basis in reality. Those rising property prices are much more marked in the rest of the UK. This is a good thing. If there is one thing more important to an economy than confidence, it is stability – so Northern Ireland would be best to avoid this boom and bust cycle, although time will tell if it does so in the long run.
Northern Ireland is fairly well positioned economically with rising confidence in both Great Britain and Ireland (the main export markets), strong foreign direct investment and sensible property prices. Its main problem is political instability, which inevitably delays or even blocks investment leading to jobs. Now there’s a thought…