Northern Bank forecasts growth of just 1.1% as calls grow for more favourable tax rates to attract foreign investment
Northern Ireland's recession-hit economy will lag behind most of the UK this year, according to a key business survey that is expected to prompt further calls from Belfast politicians for cuts in corporation tax rates to compete with the south.
The Northern Bank's quarterly economic forecast predicts that the growth rate for the economy will struggle to reach 1.1% this year compared with a UK average of 1.7%. The bank's survey, which lowered the chances of falling back into a deeper recession, warned that growth and recovery were still fragile in Northern Ireland.
The report is published as the power-sharing government in Belfast makes a decisive push to persuade the Treasury to lower the local rate of capital taxation to 12.5% ? the same low corporation tax rate that its neighbours in the Irish Republic continue to use to attract foreign direct investment (FDI).
The north's politicians argue that they cannot compete with their southern counterparts in terms of winning FDI unless corporation tax is on the same level or even lower than the Republic's. But the Stormont Executive's campaign to lower the tax rate has created a problem for the Conservative-Lib Dem coalition because the SNP-led Scottish government has warned that if Northern Ireland is granted the same corporation tax as the Republic then Scotland should also get the same rate.
Despite the significant challenges that the Northern Ireland economy faces, the Northern Bank's forecasts for this year suggests that there will be growth in a number of sectors including: manufacturing (4.3%), agriculture (3.9%), personal services (2.6%), transport (2%) and hospitality (1.9%).
Angela McGowan, Northern Bank chief economist, said: "The impact of austerity cuts have naturally taken their toll on growth levels this year. Households have also felt the sharp impact from higher prices, which have eroded their purchasing power.
"A correction in international commodity prices would clearly improve the situation but cannot be guaranteed. At the moment, the primary support for economic growth is coming from low interest rates and solid global demand."
The report indicates that strong global demand continues to support Northern Ireland's local manufacturers with growth of more than 4.3% expected this year for this sector, on top of the 3% growth that was reached last year.
McGowan added: "Manufacturing remains Northern Ireland's shining star when it comes to comparisons of sectoral performance. What is disappointing in our economy's performance is the lack of growth in service exports over the last year.
"Despite the fact that global demand for many types of business services rebounded during late 2009 and throughout 2010, the majority of Northern Ireland's service companies remain focused on the local market."
Also highlighted in the report is information that the construction sector has hit a new low when it comes to output and earlier hopes that it may benefit this year from initiatives such as the Green New Deal are fading. The tightening in public spending will mean that some other sectors are also expected to shrink this year. They include: public administration (-1.4%) and education (-1.2%).
McGowan said: "Economic growth will be sluggish in 2011 and the challenges of reduced public monies and elevated inflation will take their toll. Nonetheless, opportunities remain in the form of high levels of global demand and the weak pound, the latter making our exports more attractive abroad."
Struggling to rebuild
Northern Ireland's construction sector is dominated by public-sector building works. In March, figures showed that schools, hospitals and transport projects accounted for 50% of building jobs, compared with 35% before the recession. Northern Ireland can still boast 70,000 construction workers and an industry that accounts for about �2.5bn of economic activity a year but it still faces a fourth year of decline. Figures from the Federation of Master Builders show March was the 13th month in a row that the workloads of small and medium-sized construction firms in Northern Ireland have been negative. The last edition of the Northern Ireland Construction Bulletins, published in January, showed that the total volume of output in the third quarter of 2010 was 11.1% lower compared to the same quarter in 2009.
Before the crash in 2007, Northern Ireland was gripped by one of the most spectacular property booms of any region in the UK. House prices tumbled by 40% in 2008 but it only partially deflated a bubble that had been inflating for five years: in 2006 alone, house prices had jumped by 48%, far more than any other part of the UK.
Phillip Inman
Source: http://www.guardian.co.uk/business/2011/may/30/northern-ireland-economy-slow-growth
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