OVERVIEW of NORTHERN IRELAND ECONOMY

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• OVERVIEW of NORTHERN IRELAND ECONOMY

Richard Ramsey NI Economist Presents to NILGA
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Global economic context

• Credit crunch has been more pronounced and
  prolonged than expected
• Financial market crisis intensified following
  collapse of Lehman Brothers
• Q4 2008 witnessed a collapse in global trade
  with manufacturing activity plummeting
• Lack of demand has eased inflationary
  pressures e.g. Oil price
• Now the fear is deflation not inflation
• All major economies to contract by 1.0 2.5
  (RoI -4.5 in 2009)

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Interest Rate Policy Response Unprecedented
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Inflation, Inflation, Inflation but now deflation?

• CPI hit 5.2 (MPC target 2) but currently
  3.0. CPI will plummet in 2009. RPI now 0.1 and
  set to go negative.
• Food energy have been driving inflation but
  latter falling sharply.
• Squeeze on household incomes
• NI has 2nd lowest disposable incomes in UK
• 1/3 of households in fuel poverty
• Business - experiencing profit erosion due to
  cost pressures in 2008 now lack of demand is
  affecting profitability in 2009

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NI UK experiencing sharp downturns
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The origin of the global NI downturns was the
same thing..
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The rise and fall of the NI housing market
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NI had a Celtic Tiger housing boom without a
Celtic Tiger economic boom

• April 2005 NI house prices were 2/3 of the UK
  average and all regions bar Scotland above NI.
• NI overtook UK RoI averages by Feb 2007
• By Aug 2007 NI had the 3rd highest house prices
  of any UK region.
• Yet NI has the lowest average wages in the UK and
  highest rates of economic inactivity.
• NI is expected to fall back down the regional
  house price table and its position will reflect
  its economic fundamentals.
• Lower house prices are a good thing!

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House building sector in midst of worst downturn
to date

• NHBC Housing starts down 60 during 2008 (UK
  -47)
• 2009 record low of lt4,000 expected down 80
  from 2006 peak (18,000)

• NIs house building sector is falling from a
  higher peak than UK
• In 2006, NIs rate of house building was half the
  rate of the RoI but 3 times the rate of the UK
• Key issue in 2010 beyond is social housing
  Waiting lists set to rise but funding relative to
  demand set to fall

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But property slowdown is also affecting services

• Business Services Retail / distribution have
  driven employment growth
• Business financial services is Executives
  priority growth area
• But 2008, service sector output is contracting.
• 2009 will witness even steeper declines due to
  slowdown in property market, consumer squeeze
  rising unemployment

Property has benefited many people Solicitors,
Surveyors, Estate Agents, IFAs, Bankers,
Architects, Retail (linked to home-furnishings /
DIY), Developers, Speculators / Investors,
Advertising, Public Sector Asset base
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Consumer Demand weak for big ticket items
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Exposure to property market will also affect
capital investment plans..due to reliance on
asset sales
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Manufacturing, until recently, had been the best
performing sector in NI

• Manufacturing output remained strong in H1 unlike
  the UK with employment holding up
• But H2 2008 will see a significant decline and
  more in 2009. Output flat in Q3.
• World trade collapsed in Q4. Concern has shifted
  from rising costs to falling demand.
• Seagate one of NIs top exporters closed its
  Limavady plant Sep 08. Other firms on short term
  working, shedding jobs and experiencing pay cuts
  (e.g. FG Wilson, Seagate Springtown, Michelin,
  Powerscreen, Schrader, AVX)
• Some sectors more recession proof than others
  (food producers pharmaceuticals) and will
  benefit from favourable exchange rate.

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NIs decade of employment growth comes to an end

• 110,000 jobs created over last decade
• Driven by services more recently construction
• 2009 set for steepest employment decline since
  1980s
• Job losses from public sector reform / RPA
  timing?

• All sectors are experiencing job losses
• Fall is most marked within construction sector
  and this excludes the self-employed

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Rising unemployment with more to come

• Headline unemployment rate 5.1 compares
  favourably with UK (6.3) set to hit 7 plus in
  2009
• Claimant count measure is rising at fastest rate
  since 1971
• No. of unemployed claimants to rise from 38k to
  55k in 2009
• Perspective important not return to levels of
  unemployment in early 1980s or 90s
• Those areas most exposed to construction sector
  have been adversely affected
• Lack of basic skills is a key problem which will
  increasingly come to the fore

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Any signs of financial strain?

• Insolvencies up set to rise further in 2009
• Over 1,600 in 2008 up 22 on the year
• But insolvencies are still relatively low. NI has
  half the insolvencies per 10,000 population
  relative to England Wales.
• Actions for Mortgage Possession in 2008 (3,628)
  were up 64 one third resulted in possession
  (almost 1200)
• The main NI lenders are not responsible for this
  second charge lenders are

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Corporate insolvencies also on the rise
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NI Economic Outlook

• NI was recession proof in the 1990s but it is
  not now
• Growth in 2008 is expected to show a decline,
  with 2009 negative (-2.5)
• NI is experiencing a simultaneous slowdown in
  private sector activity, public
• expenditure growth the property market
• NI downturn was driven by construction, then
  services and now manufacturing, some
  sectors will be more recession proof
  e.g. food producers pharmaceuticals
• Unemployment rising at its fastest rate since
  1971 all sectors will lose jobs
• Efforts to stimulate the construction sector
  are likely to yield the largest return
• Pre-Credit crunch - Financial services central
  to future economic growth. Now?

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How long will the credit crunch last? The
disclaimer
There are known knowns. These are things we know
that we know. There are known unknowns. That is
to say, there are things that we know we don't
know. But there are also unknown unknowns. There
are things we don't know we don't know.
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