Northern Ireland’s economy to reach pre-Covid levels this year, but facing global headwinds

Northern Ireland’s economy is expected to grow by 4.2% this year but will be mired by global headwinds and soaring energy and input costs, a survey has found.

As growth slowed in the last quarter of 2021, Northern Ireland and the UK as a whole are expected to return to pre-Covid levels of economic output sooner in 2022 than originally expected, according to the UK’s spring outlook. University of Ulster Center for Economic Policy.

“However, significant risks to growth remain and many of them are global in nature,” he said. “In particular the deterioration of the situation in Ukraine, which will have devastating humanitarian consequences and exacerbate existing economic risks.

“This includes even higher energy prices for industry and households, the potential for supply shortages of energy and other key commodities, escalating supply chain issues and the risk of targeted cyberattacks against Western physical and financial infrastructure.”

The UK is expected to see a 4.5% increase in economic GVA this year, with Northern Ireland trailing slightly at 4.2%.

On some of the biggest rises in inflation in 30 years, now at 5.5%, the report says contributing factors include rising demand after the restrictions as global tensions create pressures on costs and the risk that an increasingly tight labor market could lead to higher inflation. wage demands.

“Just as the world’s major economies reached pre-Covid levels of economic activity and business optimism turned positive after a very difficult 18 months, geopolitical tensions between Russia and Ukraine escalated into war, creating a human tragedy as well as a series of major new economic risks,” said Gareth Hetherington, director of the Center for Economic Policy at the University of Ulster.

“The problem for local and national policymakers is that many of these challenges are global in nature and largely beyond our control, at least in the short term.

“Although the UK is directly dependent on Russian oil and gas, the energy market is global, so any shortage of supply in one market, for example mainland Europe, drives up prices for everything. the world.

“In addition, the sanctions imposed on Russia also have a cost for Western economies, the magnitude of which is not yet clear. All of this will result in higher inflation and, therefore, higher interest rates.

“The challenge for central banks is therefore twofold, first try to reverse the upward trend
inflation via higher interest rates, but secondarily to avoid the prospect of tightening
monetary policy too quickly just as the economy is beginning to slow due to rising costs and the wider consequences of the war in Ukraine.

Pat R. Madsen