The soaring cost of living and the impact of the war in Ukraine will curtail growth for the Northern Ireland economy in the next two years.
That is the view of Danske Bank which said price rises are putting businesses under pressure and hitting consumers’ pockets hard while the Ukraine conflict will add to inflationary pressures and dent sentiment.
As a result, it has cut its expectations for growth in the Northern Ireland economy in 2022 to 3.6% from 4% and to pegged 2023 growth at just 1.7%.
Danske Bank Chief Economist Conor Lambe said the province’s economy grew in the first quarter of this year despite a number of headwinds and is facing a challenging period in the coming months.
“The outlook for the economy is particularly uncertain as the war in Ukraine, high inflation, changes to the economic policy environment and Covid-19 all have the potential to impact economic performance,” he said. “We expect the pace of economic growth to weaken as high inflation squeezes consumer incomes and both fiscal and monetary policy are becoming less accommodative, with these factors contributing to the downward revision to our economic growth forecast for 2022.”
When it comes to sectors, it said accommodation and food services, as well as arts, entertainment and recreation will see the most substantial growth. Both were hit hard by the Covid-19 pandemic and are still in the process of recovering from its impact.
Meanwhile, information & communication and professional, scientific & technical services sectors are also expected to perform strongly, while the wholesale and retail trade sector is expected to be held back by a tightening of disposable income.
An increase in costs will pare the growth prospects of the manufacturing sector and could impact the construction and agriculture, forestry and fishing industries, Danske Bank said.
Meanwhile, the labour market is expect to remain strong with the average number of employee jobs likely to climb by 1.1% in 2022.
However, the future for the Northern Ireland economy will be very much dictated by inflationary pressures, and the war in Ukraine.
“Inflation in the UK is already at a 30-year high and is expected to rise even further. High inflation erodes consumers’ purchasing power and puts upward pressure on businesses’ costs, which can lead to a squeeze on household spending and act as a drag on business investment,” Mr Lambe said. “If inflation runs even higher than expected and remains at more elevated levels for a longer period of time, it has the potential to constrain economic growth even further.
“The war in Ukraine is expected to impact the UK and Northern Ireland economies mainly through higher inflation and potentially through adverse impacts on consumer and business sentiment. If the war were to be prolonged or to escalate further, the human consequences would be tragic and the economy could be negatively affected.”
