The North's property market is in freefall while the cost of living is rising, writes Francess McDonnell

BELFAST'S BOUCHER Road is feeling the cold chill of the economic slowdown in the North more keenly than most. Its community of car dealerships has seen a dramatic decline in sales as Northern Ireland's love affair with the car becomes a casualty of the global credit crunch.

A huge jump in the cost of living in the North, a property market in freefall and rapidly rising unemployment has quickly pushed the dream of a new car to the bottom of the wish list for most people.

Latest figures from the Society of Motor Manufacturers and Traders show 5,389 new cars were registered in the North last month compared to 7,719 registered in September 2007.

The drop in sales is a much bigger statement about what is going on in the local economy than may appear at first glance.

Last year the major car dealerships could not keep up with the demand for new cars in the North - particularly for luxury models.

Between April and June 2007, 144 new Porsches were registered for the first time in Northern Ireland. Between April and June this year this number dropped to 36.

According to Philip McDonagh, chief economist with PricewaterhouseCoopers in Northern Ireland, the drop in car sales is one of a number of key indicators which shows traditional drivers of growth in the North are all slowing at once.

Investment, consumer spending, public expenditure and exports have all fallen back, he says.

He believes the decline in these indicators taken together could combine to create a "perfect storm" for the local economy.

McDonagh says the outlook for the construction sector, where average employment in house building has fallen by 50 per cent and the average number of unsold dwellings has risen by over 65 per cent, potentially points to a sector in crisis.

The Construction Employers Federation says more than 2,000 building jobs have already been lost while the Northern Ireland Construction and Property Group fears up to 4,500 jobs could go before the end of the winter.

House prices in the North are continuing to fall - by 30 per cent in the last 12 month, according to the Nationwide Building Society.

The Construction Employers Federation believes public sector projects worth an estimated £200 million could be allocated in the North if the Executive agreed to get back to business.

The number of redundancies being announced across the construction sector is continuing to gather pace, and has driven up the unemployment rate, which rose from May to July of this year to 4.4 per cent.

Richard Ramsey, an economist with Ulster Bank, believes that focusing on the current state of the labour market in the North is like looking in the rear-view mirror; the full impact of an economic downturn lies ahead.

Ramsey says the construction sector may have borne the brunt of the job losses to date but, in his view, this disguises "the level of underemployment as well as unemployment within the sector".

He believes the closure of Seagate Technology's Limavady plant at the end of last month will refocus attention on the decline in the North's manufacturing sector.

"Rising cost pressures and slowing demand at a global level will provide an increasingly challenging environment for Northern Ireland's industry in the year ahead.

"Against this backdrop, the Northern Ireland economy will be effectively flying on one engine for employment growth - private sector services."

Ramsey adds that overall, Northern Ireland will "experience declining levels of employment within both the public and private sector in 2009 for the first time since the early 1980s".

The Northern Ireland Minister for Enterprise, Trade and Investment, Arlene Foster, says she recognises the "current global economic conditions present local businesses with significant challenges".

She remains encouraged though that the Northern Ireland economy is forecast to grow in 2008 and 2009 - albeit at extremely low levels.

Oxford Economics predicts that growth in the North's economy will fall back to 0.5 per cent.

Foster believes the North must plan for the upturn when it comes. She will travel to the United States later this month to accompany 15 local companies and representatives from the University of Ulster on her first trade mission as Economy Minister for Enterprise, Trade and Investment.

"While the US is currently in the midst of serious economic difficulties," the Minister said, "there are still significant business opportunities for Northern Ireland companies prepared to back up good products and services by investing time and other resources in what is still an important market, particularly for innovative technology."