Rising construction output drives economic activity in N.Ireland

Posted: by July 18th, 2019

The Q1 2019 Northern Ireland Composite Economic Index- a proxy for measuring economic output showed positive growth of 0.3% compared to the previous quarter and a healthy expansion of 1.5% over the last 12 months. 

It is particularly encouraging to see economic growth driven by the construction sector, growing at 7.7% year on year. Within the construction sector the most notable driver of activity was from housing output, including new house building, which expanded at an impressive 8.4% compared to last year. 

Housing output has been rising steadily since 2013 when the economic recovery truly commenced following a long period of muted activity across the economy.

All other measurable sectors expanded over the last year with production (predominately manufacturing) growing by 2.3% and the services sector at a more modest growth rate of 0.7%. It should be noted that productions output will have been artificially boosted in the opening quarter of 2019 as businesses stockpiled ahead of the original Brexit date at the end of March. As such it is expected that the Q2 performance will be weaker as businesses run down their supplies. 

Taking a longer term view, the production sector is the only measurable sector producing more output compared to mid-2007 levels before the financial crash. 

The services sector is 3% smaller than peak levels but the biggest downward force is from subdued activity in the construction sector with output levels almost 30% lower. 

The local economy remains on a low growth trajectory, falling behind UK and Ireland counterparts. In total, N. Ireland’s economic output is estimated to be 4.4% smaller compared to peak levels. This compares to the UK, where output is 13% larger, and almost 60% larger in Ireland.

Whilst Ireland’s economy is undoubtedly growing significantly faster than the UK and N. Ireland, the estimates are flattered by methodological reclassifications within the national accounting framework. 

Nonetheless, the three economies are clearly operating at different speeds. The latest estimates suggest the Irish economy is growing in the 4.0%-5.0% range, UK in the 1.0%-2.0% range and N.Ireland in the 1.0%-1.5% range.   

Looking forward, the threat of a No Deal Brexit remains the biggest downside risk to the economic outlook. Almost all empirically accepted research suggests the economy will be negatively impacted from a No Deal Brexit. The latest Brexit ‘deadline’ is scheduled for the end of October and with the next PM due to take office next week, only time will tell what type of Brexit occurs, and critically how close a relationship the UK shares with the EU.

Jordan Buchanan, Chief Economist

Telephone: 028 90 18 33 44 . Email: [email protected] Twitter: @jbuchanan0707

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