Danske Bank downgrades growth outlook for Northern Ireland economy
DANSKE Bank said Northern Ireland’s economy is expected to slow this year in the face of rising inflation and war in Ukraine.
The lender has lowered its growth forecast for the economy in 2022, predicting that it will now grow by 3.6%.
It comes after the Office for Budget Responsibility (OBR) released its bleak outlook for the UK economy on the tangent of UK Chancellor Rishi Sunak’s spring statement last month.
Citing high global inflation and continued supply chain pressures, the OBR said the UK economy was likely to grow by 3.8% in 2022 and 1.8% in 2023.
The Treasury-funded body said UK inflation is likely to average 7.4% in 2022, peaking at 8.7% in the fourth quarter.
Danske Bank said Northern Ireland’s economy is likely to lag Britain’s growth next year, growing by 1.6%.
The lender had forecast growth of 4.7% for Northern Ireland in 2022 as recently as the third quarter of 2021, before cutting it back to 4% in the fourth quarter.
Official data from Stormont shows the North’s economy grew by 1.2% between the third and fourth quarters of 2021 and ended the year up 4.9% from the same period in 2020.
Danske Bank’s chief economist, Conor Lambe, said while growth continued through early 2022, the combination of war in Ukraine, high inflation, Covid-19 and changes of the economic policy environment has made the road uncertain.
“All have the potential to impact economic performance,” he said.
“We expect the pace of economic growth to weaken as high inflation squeezes consumer incomes and fiscal and monetary policies become less accommodative, all of which contribute to the downward revision of our economic growth forecast for 2022.”
Danske Bank expects the inflation rate in Northern Ireland to be slightly lower than in the UK, averaging 7.2% in 2022 before dropping to 3.8% in 2023.
The lender expects the accommodation and food services (16.2%) and arts, entertainment and recreation (10.5%) sectors to post the highest growth rates again in 2022 after a strong 2021.
But that will slow later in the year, partly due to the impact of high inflation on spending in consumer-oriented sectors.
Conor Lambe said: “UK inflation is already at its highest level in 30 years and is set to rise further. High inflation erodes consumer purchasing power and puts upward pressure on business costs, which can lead to a squeeze on household spending and dampen business investment.
“If inflation is even higher than expected and remains at higher levels for a longer period, it has the potential to further limit economic growth.”