Wed 7th Aug 2019
Quarterly Economic Survey: Weak domestic and export performance hinders economic growth
The latest Quarterly Economic Survey published today (7 August 2019) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO suggests that Northern Ireland’s economic growth remains sluggish.
While a majority of businesses are reporting increases in indicators such as jobs, investment and confidence, indicators around the region’s domestic and export sales performance are weak and falling order books are a cause of concern. The survey indicates that some of the economy’s post recovery gain has been eroded following the Brexit vote, with growing cash flow concerns and fewer businesses operating at full capacity.
The survey shows that while there has been some uplift in confidence and investment intentions in Q2 19, there are some worrying signs around trade conditions for local manufacturers.
11 of the 14 key manufacturing balances are positive in Q2 19 suggesting some signs of growth. However, 8 of the 14 key balances fell over the quarter including those around domestic sales, exports and jobs. More manufacturers are expecting orders to fall over the next 3 months than those expecting them to rise. This balance is the weakest recorded since Q1 13. The sector’s cash flow position remains precarious with a negative cash flow balance (-14%pts), lowest across the 12 UK regions.
The percentage of manufacturers operating at full capacity is at its lowest since Q4 14.
After a slow start to the year, it has been a better Q2 for the service sector.
Almost all key balances are positive, with 7 of the 14 balances up on Q1 19. There was also a slight uplift in performance in the domestic economy with both domestic sales and orders up on Q1 19.
Employment indicators remain largely positive. As with manufacturing, the sector is trying to remain confident around turnover growth with a balance of +35% of service sector firms expecting turnover to grow over the next 12 months.
However, the sector’s weak export performance persists with export sales and orders balances at +4%pts and +3%pts respectively. Investment intentions have been weakening since the start of 2018, particularly around capital investment and the percentage of businesses operating at full capacity is at its lowest since Q3 15.
Businesses are trying to remain confident despite the challenges posed by Brexit, the lack of a local Assembly and other concerns. The balance of businesses expecting turnover to rise over the next 12 months remains positive for both manufacturing (+26%pts) and services (+35%pts). However, the figures are changeable on a quarterly basis, particularly in manufacturing. The survey highlights that some of the post recovery gains in business confidence have been eroded since the Brexit vote took place.
Exchange rate pressures eased in Q2 19 with 42% of members expressing this as more of a concern than 3 months ago (52% Q1). However, this is still more than twice as high as the 19% of members expressing concern before the Brexit vote took place. Competition is a growing concern in Q2 19 (42% compared to 36% in Q1). Fewer members are concerned about interest rates this quarter (10% in Q2, down from 16% in Q1).
Brexit Watch in Q2 19 focused on preparations for Brexit and whether the 6-month extension of the Article 50 process to 31 October 2019 has made any impact on those preparations. Results show that three-fifths of NI Chamber members are preparing for Brexit. Overall, 62% are preparing in some way for Brexit while 22% are not. More manufacturers (77%) are likely to be preparing for Brexit than those in services (57%). Those not making preparations for Brexit are most likely to state that 1) they don’t know what they are planning for 2) they don’t think that Brexit will affect them and/or 3) they don’t think it will happen.
The 6-month extension of Article 50 has had some impact on Brexit planning. Around 14% have put exit plans on hold while 28% have scaled back plans to see what happens in the intervening period.
Manufacturers’ recruitment intentions remained unchanged in Q2 19 with 63% of manufacturers and service sector businesses trying to recruit over the quarter. Recruitment difficulties have been a persistent issue for members. Around 76% of both service sector and manufacturing businesses are currently having difficulty recruiting the right staff, largely skilled manual and professional/managerial staff.
Commenting on the survey results, Ann McGregor, Chief Executive, NI Chamber said: “The results of our latest Quarterly Economic Survey reveal that most key indicators are positive, confirming that more of our members are reporting growth in domestic sales, exports and jobs than not. While this is certainly good news given current challenges, there is still cause for concern for future growth including falling order books and fewer businesses working at full capacity, with manufacturing and services both facing their own upheavals.
“Businesses across all sectors are to be commended for trying to keep confidence around growth prospects up in the face of such challenges but it is not surprising that they are finding it difficult to make investment decisions given the level of uncertainty surrounding the future. Companies urgently need to see a pro-business approach from the new government. Without a sensible and pragmatic plan to break the Brexit impasse and the urgent restoration of power-sharing at Stormont, these indicators could quickly become starkly negative economic realities and the business community will find itself in an even more challenging position next quarter. We have to find a way to stop the Northern Ireland economy losing any more ground.”
Brian Murphy, Managing Partner at BDO, said: “Businesses continue to operate cautiously in their respective markets as we come to the end of the second quarter, although it should be noted there is still a reassuring confidence around growth prospects. With a new Prime Minister and Cabinet announced last month, businesses are hoping for clarity around a range of issues that will allow them to make investment decisions, something many have understandably chosen to put on hold.
“The latest Quarterly Economic Survey has produced a mixed bag of results, with the majority of businesses reporting increases in indicators such as jobs and recruitment intentions, however, the region’s domestic and export sales performances are weak with ongoing concerns around future trade conditions, particularly for our manufacturing sector.
“With the possibility of a no deal Brexit coming our way on the 31st October it is positive to see 62% of businesses are proactively planning for Brexit. I would strongly urge those businesses who have not yet initiated planning for the UK leaving the EU to take immediate action, seek advice and ensure that they are in the best possible position.
“There is no doubt that the NI business community needs a plan from decision makers as to how key issues affecting growth will be addressed. Individually, we also have to acknowledge that we are coming to the end of the “wait and see” period and it’s critical now that we are geared up and ready to go.”