The Northern Ireland economy is suffering from a lack of competitiveness because of sterling's strength and could be heading for liquidity problems, a partner with PricewaterhouseCoopers has warned following the publication of figures on business failures.

Although the number of failures is down from 99 in the third quarter of 1998 to 65 in the July-September period of this year, Mr Paul Rooney said the figures did not reflect the reality of economic conditions. He warned that profit margins were tightening in the face of international competition.

There was evidence, he said, that companies were using retained earnings and short-term borrowings to bolster profits "in the hope of improved trading conditions".

Mr Rooney said: "This is the environment which creates liquidity problems, particularly for manufacturing exporters and firms facing imports from competitors operating in the euro zone," and added that "a disquieting number" of smaller companies were reporting that survival was a short-term objective and there were worrying levels of job losses in traditional industries.

Of the 65 business failures, 13 were for limited companies liquidating and 57 were sole traders or partnerships. The number of business failures was published by business analysts, Dun & Bradsheet, who also report that business failures in the Republic increased during the third quarter by 15 per cent on the same period in 1999.

In the July to September period, there were 176 liquidations, compared to 150 in the same three-month period in 1998.

Mr Jonathan Cushley, sales manager of Dun & Bradsheet, Ireland, said the figures flew in the face of encouraging second quarter results, when there was a 44 per cent decline in failures. "However, year-on-year results indicate that there is a slow down in the failure rate of 4 per cent," he said.

For the first nine months of 1999, there were 463 business failures compared to 483 liquidations in the first nine months of last year, a drop of 4.1 per cent.

Mr Cushley added that the results remained encouraging when compared to Britain and Northern Ireland which, together, experienced an 18 per cent increase in failures, its worst result since July-September, 1992.

Mr Cushley pointed out that although there was a 34 per cent decrease in the number of Northern Irish failures, the traditional summer holiday period often caused failure backlogs to accrue into the fourth quarter.