16 July 2015

Northern Ireland's growth of new work at nine-month high

The latest Northern Ireland PMI report – produced for Ulster Bank by Markit – indicated that output growth was maintained as new orders rose at an accelerated rate. Increased new business led to a build-up of outstanding work, but the rate of job creation eased. Meanwhile, cost inflation moderated and companies raised their output prices for the first time in ten months.

As we pass the half way mark of 2015, it is clear that the first half of the year ended much more positively than it started. Then, Northern Ireland’s private sector was reporting falling levels of output, new orders, exports and employment. After a disappointing first quarter, however, business sentiment has improved markedly. Whilst the economic recovery is not as robust as we would like it to be, it is nevertheless encouraging to note that firms are still in expansion mode.  The private sector now has more momentum going into the second half of the year than it had a few months ago.

According to the latest Ulster Bank PMI, Northern Ireland’s private sector reported increased levels of output, orders, exports and staffing levels in June. However, the pace of growth in business activity was marginally weaker than that recorded in May and remained below the pre-downturn long-term average. Perhaps of more concern, employment growth eased significantly in June with firms hiring staff at their weakest rate since January. In particular, the services sector failed to record employment growth last month for the first time in two years.

The forward-looking new orders index offers some encouragement that the return to positive growth that occurred in the second quarter can be maintained in the third quarter.  Local firms saw their order books expand at their fastest rate since September last year. The manufacturing, services and retail sectors all reported robust rates of orders growth, with retailers posting their first increase in nine months. Growing demand should also support further job creation in the months ahead.  In particular, the rise in backlogs of work not started or completed in the manufacturing sector should lead to further employment growth this year.

The UK market remains the most buoyant source of demand for local firms. However, new export orders also posted growth for the first time this year and the fastest rate of growth since last August. Nevertheless, the strength of sterling against the euro is still acting as a drag on export performance. Outside of exchange rates, Northern Ireland cannot insulate itself from external economic conditions either.  As the Chancellor noted last week, global economic risks linked to China and Greece are rising. Meanwhile more fiscal austerity is set to be revealed in the autumn Spending Review. This will have implications for the public sector and indirectly will impact on the private sector too. Looking ahead, the economic recovery is likely to experience more headwinds than tailwinds.