Year in review: Northern Ireland’s economy in 2021
As we head into the end of 2021, I think we can say it’s been another 12 unpredictable months.
From an economic perspective, there were some developments that we were able to learn from in 2021, but there were also a number of challenges, some that continued from the previous year and others who appeared.
Looking back on last year, here are five key takeaways for Northern Ireland’s economy in 2021.
1. The coronavirus pandemic remained a key driver of economic performance
Unfortunately, Covid is still very much in the air heading into the end of the year and developments related to the pandemic have had significant impacts on economic output throughout the year. Restrictions put in place to limit the spread of the virus in the first quarter led to lower activity levels, but the economy grew strongly in the second quarter as these measures were gradually eased.
Economic growth in the UK was positive and above its long-term average in the third quarter and, although we don’t yet have third quarter figures for Northern Ireland, they should also show an increase in activity levels.
The economy is expected to expand again in the fourth quarter, but the potential impact of the novel coronavirus variant Omicron is a source of uncertainty as we approach next year. Overall, the pace of economic recovery this year has been stronger than expected at the start of 2021.
2. The impacts of the pandemic on the labor market have been more moderate than initially expected
At the start of the pandemic in 2020, there were fears that unemployment would rise sharply due to the confinement and closure of many businesses. However, government support measures seem to have been relatively successful in keeping people in their jobs.
The furlough scheme ended in September this year and although we don’t yet have the data to paint a full picture of the post-furlough labor market, the numbers we do have are encouraging. Northern Ireland’s unemployment rate in the third quarter of the year was 4% – higher than it was at the start of 2021, but still low by historical standards.
The number of salaried employees rose 0.5% in October to the highest level on record and, as Danske Bank’s overall Northern Ireland consumer confidence index fell in the third quarter of the year, the portion of the index based on job security expectations actually rose from the previous quarter.
As more information becomes available, we will be able to more fully assess the impact of the pandemic on the labor market, but at the moment the situation is more positive than initially expected.
3. Inflationary pressures have appeared
In January of this year, the UK inflation rate was 0.7%. In October – the latest data point available – the inflation rate was 4.2%, more than double the Bank of England’s 2% target. Two of the factors that have contributed to this sharp rise in inflation are rising fuel and energy prices and disruption in the global supply chain.
The annual inflation rate for electricity, gas and other fuels in October was 22.9% and it exceeded 20% for gasoline and diesel. While these stark numbers relate to consumer price inflation, it is also important to note that increases in energy prices are affecting businesses and can put upward pressure on broader inflation if companies increase their prices in response to rising costs.
An example of supply shortages can be seen in October inflation data with the price of used cars up 22.8%. The shortage of semiconductors has had a negative impact on the production of new vehicles and has led to an increase in demand and prices for used vehicles.
Like many other economists, I expect this period of high inflation to be temporary, but it’s unclear how long it will last, and because of this higher rate of price increases, I think we We will likely see an increase in the Bank of England base rate in the coming months.
4. Uncertainty continues over post-Brexit trade deals in Northern Ireland
The Northern Ireland Protocol, which effectively keeps Northern Ireland within the EU’s single market for goods, has brought about new checks and processes when transferring certain goods from Great Britain to Northern Ireland. North. In July this year, the UK government published a document setting out its proposals for amending the protocol.
Then in October, the EU published its proposals for the Protocol. The UK and EU are currently negotiating to try to agree a way forward when it comes to implementing the protocol.
However, there is still uncertainty about the outcome of this commitment and companies are still waiting for the clarity they need to most effectively plan for the future.
5. 2021 was another good year for the housing market
It has been another year of strong price growth in the housing market in Northern Ireland. The latest data for the third quarter of the year showed a 10.7% annual rise in standardized house prices, compared to 9.7% in the second quarter and 5.9% in the first quarter.
A number of factors including people reassessing their housing needs, some people accumulating higher levels of savings which could be used to help buy property, low interest rates, entitlement vacations stamp duty and supply constraints have all contributed to the relatively high home price growth seen this year.
As we look to 2022, there is still a lot of uncertainty surrounding the economic outlook. In terms of annual economic growth rate, we are likely to see another relatively high rate of expansion next year.
But there are a number of headwinds that could affect the economy’s performance, including the potential impact of the novel coronavirus variant Omicron, high inflation, labor shortages and chain disruptions. supply, to name a few.
While acknowledging the uncertainty and challenges, hopefully there will also be positives that I can include when writing my year in review article for 2022.
:: Conor Lambe is Chief Economist at Danske Bank