By Conor Lambe, Chief Economist at Danske Bank
At the beginning of a new year, the question most asked of economists is what does the next twelve months have in store for the economic, political and business environment? This is a difficult question to answer at the best of times – after all, nobody can say with 100 per cent certainty exactly what the future will bring. But, in the uncertain times in which we are currently living, it’s even harder to come up with a response to this question.
Recognising this difficulty, and admitting upfront that I could be proved wrong, I nevertheless thought I would use my first Economy Watch article of the year to give some of my opinions on what 2019 might bring.
I can really only start with one topic – Brexit. The last couple of months have seen the Brexit rollercoaster kick into overdrive. From the UK and EU reaching a draft withdrawal agreement in November, to the postponement of the Brexit vote in the House of Commons to a no confidence vote in the Prime Minister, Brexit has never been far from the headlines.
After a couple of weeks of respite over the Christmas period, Brexit is set to return to the fore. The Brexit debate in Parliament will resume this week, with a vote on the draft agreement expected in the week commencing 14 January.
There is a wide range of possible Brexit scenarios that could yet come to fruition. These include the deal (or a variant of it) passing through Parliament at either the first or second attempt, a second referendum, a Norway-type Brexit, a general election or a no-deal Brexit.
It is clearly very difficult to predict the outcome of this process, but I do believe that a no-deal Brexit will be avoided. It looks as if the chances of the draft agreement going through Parliament at the first attempt are slim, but, one way or another, I think that the UK will leave the EU with a deal and enter into a multi-year transition period in 2019. However, at this stage, none of the scenarios I have outlined above can be ruled out. They are all still possible.
Turning towards economic growth, assuming that there is a Brexit deal, I expect the rate of economic growth in Northern Ireland in 2019 to be broadly similar to that in 2018. The gradual recovery of consumer spending power is likely to continue as inflation moves back towards the Bank of England’s 2 per cent target, but there will still be some pressure on household budgets. I also think business investment will continue to be relatively subdued.
Like most topics, the outlook for UK interest rates will also be dependent on the outcome of the Brexit process. I think it is unlikely that the Bank of England’s Monetary Policy Committee will make any changes to interest rates while there is still so much short-term uncertainty around Brexit. However, if a final Brexit deal is reached and the UK leaves the EU at the end of March, I expect interest rates to rise once in 2019, perhaps some time around the middle of the year.
While it is clear that Brexit poses a significant risk to the economy, I do expect there to be a few positives this year.
With Royal Portrush hosting The Open in July, the final series of Game of Thrones hitting TV screens this year and a number of new hotels now available to visitors, I think 2019 will be another good year for local tourism. While some of the exchange rate-driven price competitiveness that has helped to attract international visitors to Northern Ireland in recent years could begin to dissipate if a Brexit deal leads to an appreciation in sterling, these other factors should still mean that, for tourism-related businesses, 2019 will bring opportunities.
For some years now, Northern Ireland has come out on top of the UK’s well-being league table with people here reporting higher degrees of life satisfaction and happiness than people in England, Scotland and Wales. I expect Northern Ireland to maintain its position at the top of the well-being rankings this year.
I also believe some of our strongest performing sectors of recent years, such as professional services and ICT, should have another good year in 2019.
I want to conclude this article not with predictions or opinions, but with two things that I would like to see this year.
The first is the avoidance of a no-deal Brexit. I have said it before and I will say it again, a no-deal Brexit would be a disaster for the Northern Ireland economy. In my view, it simply must be avoided.
The second is the return of an Executive. A reduction in local political uncertainty and a renewed focus on setting and implementing policy would both be positive developments for businesses throughout Northern Ireland.
With a number of significant developments and events set to occur in 2019, this is likely to be a year that will live long in the memory. Let’s hope it’s for the right reasons.
This article was published in The Belfast Telegraph on 8th January 2019.