Soaring inflation, falling confidence and supply chain disruption will make the next year difficult for the Northern Ireland economy, according to the latest PMI report.
It showed the economic activity remained strong in March but highlighted growing concerns that the ongoing Russian war against Ukraine will pare growth prospects in the coming months.
As well as driving up prices – particularly for energy, grain and other commodities – the conflict has also dented confidence amongst both consumers and businesses and interrupted the supply chain for a range of manufacturing processes.
In the PMI report, businesses reported a sharp fall in confidence for the year ahead, scaling back expectations for growth in the year ahead. The manufacturing and services sectors are the most positive, but the likes of the construction sector isn’t expected to see any growth and retail remains under pressure.
The latter is expecting a sharp decline in activity given the increasing pressure consumers are now under with key expenses, such as home heating oil, more than doubling in a matter of weeks.
“The key drivers of the falling confidence – inflationary pressures and supply chain disruption – are not going away,” Ulster Bank economist Richard Ramsey said. “Indeed, with tax rises coming into effect in April, pressures on businesses and their customers will intensify.”
While the outlook may be difficult, activity in the Northern Ireland economy did grow in March, the PMI said.
Increases were noted in output, employment and order books with only the construction sector reporting a fall in output. Retail and services activity accelerated, and the rate of manufacturing output growth eased back, but remains strong.
“However, it is in firms’ order books that the challenges of the current environment are evident,” Mr Ramsey said. “All sectors saw the pace of new orders growth slow or fall. In the case of construction, this was the ninth successive month of order book contraction.”
He said inflationary pressures aren’t just impacting consumers, but businesses also.
“We have heard so much about the cost of living crisis, but the cost of doing business crisis is also affecting local firms in spades. In the services sector, wage and energy cost pressures pushed input costs to record highs.
“In manufacturing, firms are raising their prices at a record rate to cope with the cost pressures they are experiencing. And across the board in the private sector, inflationary pressures are moving back towards last year’s all-time highs.”
