By Richard Ramsey, Ulster Bank

Latest Ulster Bank Northern Ireland PMI Survey for August 2011 and Updated powerpoint slide pack are attached for your information.

During August, economic and financial market news around the world was not pretty, to say the least. The PMI surveys have proved to be no exception with an increasing number of economies recording a marked slowing in business activity last month or indeed a pick-up in the pace of contraction. The global, euro zone and UK manufacturing PMI surveys posted their first outright declines in output (below the 50 threshold) since mid-2009. From a UK perspective, the biggest surprise was the slump in activity within the services sector.  Whilst still signalling growth, it represented the largest monthly fall in over a decade. As a result, this has pulled the overall rate of growth within UK firms down to its weakest rate of expansion since June 2009. This UK slowdown will add to the Northern Ireland specific headwinds which have hampered any meaningful recovery to date.

Last month saw Northern Ireland firms signal a further acceleration in the pace of contraction in activity for the sixth successive month. Apart from December’s weather-distorted reading, last month’s survey represents the sharpest decline in business output since April 2009.  All sectors contracted at a faster rate last month relative to July.  The pace of decline is most pronounced within construction and services (excl. retail) which are both contracting at their fastest rates since early 2009. Both sectors have readings in the 30s which signals a severe contraction. Local retailers posted their sharpest fall in activity this year whilst new orders within the retail sector declined at their fastest rate since March 2009 – when the recession was in its most intense phase. Manufacturing remains the best performing sector, but it is the most exposed to a global slowdown. Indeed, last month Northern Ireland’s manufacturing firms reported that output fell at its fastest rate in twenty-six months.

In this environment, positive news remains in short supply. The fact that inflation is rising at its weakest rate this year provides little consolation for a distinct lack of demand across all sectors, with the latter expected to put pressure on current employment levels in due course. Given that the Northern Ireland economy is suffering more than any other UK region, it needs a stimulus more than anywhere else. In this regard, the PMI is perhaps Northern Ireland’s best friend at present, underscoring the imperative of a positive outcome from the corporation tax consultation. In short, Northern Ireland absolutely needs a reduction in corporation tax, and that is becoming clearer and clearer month-on-month.