Wed 25th Apr 2018
QES: Growth continuing to slow amid frustration within business community
– 2018 off to a poor start as domestic sales balances at their lowest level since 2013
– Manufacturing sector performance well below UK average
– 76% of firms experiencing pressures to raise wages
– 1 in 4 businesses have made changes to their business model in light of Brexit
– Executive must reform in order to “safeguard the future of the economy amid a troubling domestic backdrop”
The Northern Ireland economy has started the year with growth continuing to slow and domestic (UK) sales balances at their lowest level since 2013.
These findings form part of the latest Quarterly Economic Survey (QES) published today (25 April 2018) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO.
The survey, which covers the first quarter of 2018, also reveals that Northern Ireland’s regional position is very weak, ranking lowest across the UK regions for most key balances. The manufacturing sector is a particular standout with only 1 of the 14 key balances ranking above the UK average.
Export balances remain positive in manufacturing (although lowest of the UK regions) while in services export balances are negative.
The survey also reports that 1 in 4 members have made changes to their business model due to Brexit and 76% are experiencing pressures to raise wages in their business/organisation.
Growth in the Manufacturing sector showed definite signs of slowdown during Q1 2018. Sales in the domestic (UK) economy slowed considerably with more manufacturers expecting UK sales to fall than rise over the next 3 months. Export balances weakened from a strong regional position in Q4 17. Employment expectations have been falling since start of 2017 and fewer manufacturers are trying to recruit (48% vs. 64% Q4 17). The sector’s cashflow position is extremely weak in Q1 with the lowest balance on record (-33% points).
The Service sector also showed signs of sluggish growth. Almost all key balances are positive, with 5 out of 14 above the UK average, suggesting some growth. However turnover and employment balances have been falling. The domestic sales and orders balances continued the downward trend experienced since Q4 2016. NI remains the only UK region with negative export balances (export sales -2% vs. +20% UK). Employment expectations are subdued and the sector’s cashflow position is also very weak. Pressure to raise prices in NI is highest across UK regions.
Businesses are less confident around turnover and profitability growth over the next 12 months. Manufacturing confidence has taken a particular hit during Q1 2018 with a balance of +8% expecting turnover growth during 2018 compared to +46% for the same quarter last year. Profitability is a real concern with a balance of -9% of manufacturers and +7% of services expecting profitability to improve over the next 12 months.
The latest Brexit Watch suggests that 1 in 4 members have made changes to their business model as a result of the EU referendum. Almost 1 in 10 have established a presence outside Northern Ireland, with a further 20% considering doing so. Others have changed, or are considering changing their trade partners and supplier’s, recruitment plans and/or target markets. When asked to provide one question or concern to put to the UK government in its negotiations with the EU on Brexit, concerns largely focused on cross-border trade issues between Northern Ireland and the Republic of Ireland, particularly the border, along with issues around governance, the impact on free movement of labour and trade tariffs.
Members were asked about wage pressures and prospects for pay rises during 2018. Most members are experiencing pressure to raise wages in their business/organisation with over half (52%) facing some pressure and one quarter (24%) significant pressure.
Key issues include competition to retain existing and attract new staff along with workforce pressures due to cost of living increases. One in 3 members (34%) state that they are facing growing competition from other employers to keep staff.
Wage pressures are greatest in recruiting and retaining skilled workers with 41% of members experiencing significant pressure to offer higher wages to this group. Around two-thirds of members are expecting to award some form of pay rise in 2018 with 34% expect to award pay rises of 2% plus. However, 7% of members expect wages to fall over the next 12 months.
Christopher Morrow, Head of Policy at Northern Ireland Chamber of Commerce and Industry, said: “It has been a poor start to 2018 for the local economy. There are still some signs of growth but overall this has slowed and there are concerns for both manufacturing and services sectors. Northern Ireland is the weakest performing UK region across many of our key economic indicators, particularly manufacturing.
“We are seeing a growing sense of frustration among our members at the lack of progress on major issues including Brexit and the lack of Executive which are impacting on businesses’ bottom line. We can’t accept this any longer – it is damaging the economy. In what is a tired plea, we must see an Executive back up and running in order to safeguard the future of the economy amid a troubling domestic economic backdrop.”
He added: “Also, with 76% of our members feeling pressure to raise wages, this could prove challenging when so many are already facing wider cost pressures and a squeeze on profitability.”
Brian Murphy, Managing Partner at BDO Northern Ireland, said: “Unemployment in Northern Ireland is currently at its lowest rate in a decade, and this coupled with the findings of this report, that local businesses are still recruiting, is a demonstrable indication of the confidence of local businesses to continue to grow despite the challenges that exist.
“The absence of the NI Executive and the lack of clarity regarding the arrangements for Brexit is clearly a matter of concern for many. However, this report shows there is also an increase in investment intentions by local businesses. This is a welcome sign that despite the current uncertainty at a government level, businesses in Northern Ireland will persevere and plan for future success.”
Pictured: Christopher Morrow (Head of Policy at NI Chamber); Maureen O’Reilly (Economist for the QES) and Brian Murphy (Managing Partner at BDO) present the latest NI Chamber/BDO Quarterly Economic Survey findings.