By Conor Lambe, Chief Economist at Danske Bank
The Northern Ireland economy is currently experiencing a period of modest economic growth, restrained by a squeeze on consumers and Brexit-related uncertainty negatively affecting business investment. However, while we have seen relatively low growth rates in the last couple of years, it is important to note that the local economy is in a better position now than it was at the start of this decade.
Based on the Office for National Statistics estimates of regional GVA (a measure of economic activity), the Northern Ireland economy grew in every year from 2010 to 2016, which is the last data point available and is similar to the trend observed for the UK economy. This followed two years during which the UK and Northern Ireland economies both shrank in 2008 and 2009, during the global financial crisis. In 2016, the Northern Ireland economy was estimated to be around 8.5 per cent larger than it was at the start of this decade.
It’s not just the topline measure of economic output that has increased. In the second quarter of this year, there were over 55,000 more jobs than there were in the first quarter of 2010. It’s also estimated that there are now over 4,500 more VAT and/or PAYE registered businesses in Northern Ireland than there were eight years ago.
While headline numbers such as these can often get the most attention, there are important insights to be gained by delving into the detail and looking at which sectors have been the strongest performers.
Beginning with GVA, we can look at which sectors experienced the largest increase in economic output between 2010 and 2016. Based on the percentage increase between those years, the highest overall growth occurred in the mining and quarrying sector. However, this is a small sector of the economy (it makes up around 0.5 per cent of Northern Ireland’s total economic output), so it didn’t take a very large rise in output for the percentage increase to appear quite big.
Other sectors which have seen a relatively large rise in economic output are the administration & support sector, the information & communication sector and the professional services sector.
Within the administration & support sector, there was a particular rise in the output of employment activities, which includes recruitment companies or employment agencies, and in office administration and business support services which includes, for example, the activities of call centres.
In the information & communication sector, the biggest rises occurred in the making of films and TV shows, and in computer programming and consultancy. This is to be expected given some of the national and international TV shows that are now filmed here, and Northern Ireland’s strong cyber security hub.
In the professional services sectors, the strongest growth took place in the activities of head offices, management consultants and scientific research and development.
Turning to the number of jobs, the administrative and support sector has seen strong growth. In Q2 2018, there were over 13,500 more jobs in this industry than there were in early 2010. The professional services sector also appears high up on the list of industries that have seen strong jobs growth.
However, other sectors such as manufacturing (which has added over 13,000 jobs) and human health & social work (which has added over 8,000 jobs) have also seen big rises.
With regards to the number of businesses, the greatest increase has occurred in the agriculture sector, in which there are now over 2,000 more businesses than there were in 2010.
Once again, the professional services sectors have seen a rise in the number of businesses, particularly in the management consultancy subsector and in the number of architectural and engineering firms.
Information and communication is a strong performer in this area as well. There are now over 500 more computer programming and consultancy businesses in Northern Ireland than there were at the start of this decade.
Looking across these three measures, it’s clear that there are some pockets of strong growth within the Northern Ireland economy, and they are expected to keep growing over the short-term. For example, at Danske Bank, we expect the three fastest growing sectors (in terms of economic output) in 2018 and 2019 to be administration & support, information & communication and professional services. All three of these sectors are also expected to experience an increase in the number of jobs, both this year and next year.
These pockets of strong growth could also be the source of more success in the years ahead.
For example, the strong performance of some of these sectors could be a catalyst for further international investment in Northern Ireland. Some success has already been observed in this area. According to Invest NI and FT fDi Intelligence, Northern Ireland is the leading international investment location for cyber security development projects originating in the USA. As Northern Ireland enhances its reputation in areas such as these, the ability to attract overseas investment could continue to go from strength to strength.
The success of these sectors could also be used as a means of attracting talented people back to Northern Ireland. Recent figures show that in 2016/17, only around one third of Northern Irish students who graduated from a Higher Education Institution in England, Scotland or Wales returned home to work. This ‘brain drain’ has been a feature of the local economy for some time. But with evidence that there are fast-growing sectors and opportunities for employment in Northern Ireland, there may be some scope to attract more of these individuals back home in the future.
At present, it’s understandable that no-one is too excited about the performance of the Northern Ireland economy given the underwhelming growth rates of the last couple of years, and the modest growth expected for this year and next year. But looking over a longer time period, it’s encouraging to see that there are some sectors within the Northern Ireland economy that have had a pretty good decade so far. Let’s hope that we can build on this success and have even more positives to discuss as we move into the next decade.
This article was published in The Belfast Telegraph on 16th October 2018.