The soaring cost of living and the impact of the war in Ukraine will dampen the growth of the Northern Irish economy over the next two years.
That’s the view of Danske Bank, which said price hikes are putting pressure on businesses and hitting consumers’ pockets hard, while the conflict in Ukraine will add to inflationary pressures and weaken sentiment.
As a result, it cut its growth expectation for Northern Ireland’s economy in 2022 to 3.6% from 4% and pegged growth for 2023 at just 1.7%.
Danske Bank’s chief economist, Conor Lambe, said the province’s economy grew in the first quarter of this year despite a number of headwinds and will face a difficult period in the months ahead. coming.
“The outlook for the economy is particularly uncertain as the war in Ukraine, high inflation, changes in the economic policy environment and Covid-19 all have the potential to impact economic performance,” he said. he declared. “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.”
Looking at sectors, he said accommodation and food services, and arts, entertainment and recreation will see the most growth. Both have been hit hard by the Covid-19 pandemic and are still recovering from its impact.
At the same time, the information and communication and professional, scientific and technical services sectors should also perform well, while the wholesale and retail trade sector should be held back by a tightening in disposable income.
A rise in costs will reduce growth prospects for the manufacturing sector and could impact the construction and agriculture, forestry and fishing sectors, Danske Bank said.
Meanwhile, the labor market is expected to remain strong, with the average number of salaried jobs expected to increase by 1.1% in 2022.
However, the future of Northern Ireland’s economy will be strongly dictated by inflationary pressures and the war in Ukraine.
“Inflation in the UK is already at its highest level in 30 years and is expected to rise further. High inflation erodes consumers’ purchasing power and puts upward pressure on business costs, which can result in a squeeze on household spending and a dampening of business investment,” Mr Lambe said. “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.
“The war in Ukraine is expected to impact the economies of the UK and Northern Ireland primarily through higher inflation and potentially through negative effects on consumer and business confidence. Should the war be prolonged or intensify further, the human consequences would be tragic and the economy could be negatively affected.