Brexit could darken already grim financial picture

Northern Ireland is likely to dodge a full recession this year and next but if the British prime minister were to invoke Article 50 – which starts the countdown to the UK's EU exit in earnest – then it could pretty much feel like a recession anyway regardless of what the figures might suggest, according to new forecasts.

The latest Northern Ireland Economic Outlook (NIEO) published by business advisers PwC on Tuesday, paints a decidedly grim picture of the North's economic position even before "Brexit means Brexit" becomes a reality.

The pace of economic growth has slowed considerably from 2.2 per cent in 2014 to 1.5 per cent in 2015 and is expected to settle at 1.2 per cent this year.

In a worst-case scenario, it could, according to PwC, come to rest at 0.3 per cent next year depending on when Article 50 is invoked.

Then there is the continuing depressing stack of figures which starkly highlight just how increasingly out of reach any truly meaningful economic recovery is in Northern Ireland.

For instance output remains stubbornly around 7 per cent below its pre-recession peak in 2008, not to mention the fact that average gross weekly earnings in Northern Ireland are £23 a week lower than they were in 2009 and disposable household income is around £1,800 less than it was in 2007.

Scary dreams

Add the Brexit factor into this mix and Northern Ireland’s future prospects look decidedly like the stuff scary dreams are made of.

So what can the North do? The Ulster Unionist Party believes that, for starters, a "Brexit war room" needs to be established as soon as possible because it claims the North will be the most impacted part of the UK as a result of Brexit but it is the "least prepared".

It says a Brexit war room would ensure that the North’s Executive “identifies the best policy options and priorities” and sets out the “key asks” for the North from the UK government.

This week the party published its 10 key asks which includes suggestions that the whole of Northern Ireland should be designated as an enterprise zone and that financial guarantees are put in place for any organisation or group that is likely to lose EU funding.

In particular the Ulster Unionists would like to see the Common Travel Area between the North, UK and Ireland safeguarded and they want a campaign to revive EU interest in funding a physical centre dedicated to peace and reconciliation – it has put forward the Crumlin Road Courthouse as a possible venue.

But Dr Esmond Birnie, PwC's chief economist in Northern Ireland, believes the very first step for the North is simply not to assume anything will be the same ever again when it comes to the EU.

Birnie says there are no guarantees that the UK and, for that matter, the North will enjoy unrestricted access to the single market or that the UK government will be happy to maintain current levels of EU financial support on any front.

“Merely negotiating for new signatures on the traditional cheques to fund the status quo and assuming that HM government will simply replace all current EU funding streams, will not close the existing prosperity gap with the rest of the UK, let alone rebalance the economy, drive up productivity and restore wages and household incomes,” he warns.

Corporation tax

Birnie says there are also some very specific sectoral issues that the North’s Executive needs to bear in mind when it goes to the negotiating table on Brexit, particularly in relation to manufacturing, food processing and farming.

PwC estimates that 55 per cent of all of Northern Ireland’s exports go to EU markets with the Republic of Ireland being its single biggest export destination. That raises big questions about future trading arrangements and the impact a hard border would have on local businesses.

The prospect of tariffs being imposed by the EU on the North’s food processing exports and its farming sector also is one of the key concerns for the future.

But one of the biggest concerns on the horizon relates to one of the Executive’s great hopes for growing the North’s economy and reversing its current dismal economic growth – corporation tax.

There is a commitment to reduce the tax to 12.5 per cent from April 2018 but, as the latest PwC outlook highlights, if the UK decides to significantly reduce the overall rate post-Brexit any advantage Northern Ireland hopes to gain “will be diluted”.