Cause for optimism as Northern Ireland’s economic recovery gathers pace

Main Headlines:

• Business confidence improved strongly in Q2 2021
• More businesses are now making plans to invest, particularly manufacturers
• 67% believe that NI’s status post EU Exit presents opportunities for the region
• 34% saw an increase in domestic (UK) sales in Q2 2021
• 62% of businesses are trying to recruit
• 62% of manufacturers and 57% of services are feeling pressure to raise prices

Northern Ireland’s economic recovery strengthened during Q2 2021 with signs of confidence returning to both the manufacturing and services sectors, according to the most recent Quarterly Economic Survey from Northern Ireland Chamber of Commerce and Industry (NI Chamber) and BDO. The report published today (7 July 2021) shows that one year since the pandemic struck, most key indicators around domestic sales, exports and jobs have continued to show signs of improvement from their historic low in Q2 20.

Confidence and investment intentions
Business confidence improved strongly in Q2 2021 after the large collapse experienced at the start of the pandemic.

More businesses are now making plans to invest, particularly manufacturers. In Q2 2021, the investment in plant and machinery balance was +16% for manufacturing and +6% for services. This compares to a series low last year of -52% for manufacturing and -62% for services. Intentions to invest in training have also improved, with balances of +26% for manufacturing and +10% for services in Q2 2021. 

Rising prices
Price pressures came to the fore during the first quarter of 2021 and have been magnified during Q2 2021. In fact, the survey findings indicate that expectations to raise prices are currently the highest on record. 62% of manufacturers and 57% of service businesses who responded to this survey are feeling pressure to raise prices.

Recruitment
Recruitment activity continued to improve in Q2 2021, now surpassing pre-COVID levels. In Q2 2021, 62% of businesses said they were trying to recruit. This is compared to just 21% of service businesses and 27% of manufacturers in Q2 2020.

Pre-pandemic, recruitment difficulties was one of the most persistent and growing concerns among members and in Q2 2021, it re-emerged as a significant issue, with 79% of members finding it difficult to get staff. 

Sector specific findings

Recovery has been particularly strong for manufacturing businesses, with all key indicators increasing in Q2 2021.There has been a marked improvement in domestic (UK) sales indicators within this sector. The domestic sales balance, reflecting sales over the last 3 months, is 43% in Q2 2021 compared to a figure of -13% in Q1 2021. Export sales and order books have also continued to improve. However, the sector is facing significant prices pressures, with 96% of manufacturers reporting pressures from rising raw materials costs. 

The services sector is showing slower signs of recovery, as it experiences continued challenges during its emergence from Covid-19. Trading conditions remain fragile in both domestic and export markets and while all key indicators in the services sector improved, 4 of the 11 key services balances remain negative. This means that more members are reporting deterioration in domestic sales, export sales/orders and cashflow than those reporting any improvement.

Trade

During Q2, 29% of members said that their business has adapted well to new trading arrangements, up from 15% in Q1 21. Almost a third (32%) are finding new trading arrangements difficult, compared to 41% in Q1.There is a core of around 15% of businesses who are finding the new trading arrangements very challenging.

The findings show that new arrangements have had a negative impact on trade for some businesses. 24% of members stated that the new arrangements have had a major negative impact on trade with Great Britain, up from 18% in Q1 21. In general, the impact on trade with other jurisdictions, including the Republic of Ireland and Rest of the World, have been more negative than positive, although around 25% of members say that the new trading arrangements have positively impacted on trade within Northern Ireland.

Two in 3 members (67%) believe that Northern Ireland’s unique status post EU Exit presents opportunities for the region. 47% believe that Northern Ireland’s trading status will present opportunities for their business going forward. These figures reflect very similar views given in the Q1 21 survey.

Commenting on the survey findings, Ann McGregor, Chief Executive, NI Chamber said:

“Our survey findings confirm that Northern Ireland’s economic recovery is gaining momentum and while it is good to see, we must be mindful that it is coming from a very low base. Businesses are also facing significant pressure to raise prices for a variety of reasons including raw material cost increases, bottlenecks in supply chains caused by COVID-19, as well as cost and administrative burdens arising from new trading arrangements. There is a danger of persistent inflation, which is bad for businesses and consumers. However, we hope these price pressures will be a largely temporary phenomenon as some sense of normality returns after the extreme challenges of the last year and a half.

“Any cause for optimism we do have is thanks in no small part to the resilience, pragmatism and innovation of the business community. To build on that progress, what they need now is the absolute focus and support of policy makers in Stormont and Westminster. The report illustrates a significant level of concern around the impact of the current political environment on external perceptions of Northern Ireland as a region to visit and do business with. In fact, more than 1 in 3 members are very concerned about the negative impact of politics on the economy and 87% expressed concerns about the damage it will cause to the region’s international reputation. Addressing this with political stability will be key to attracting foreign direct investment and supporting our indigenous business community to do business with the rest of the world.

“EU exit has been challenging for a number of firms but the outlook appears to be improving, with more companies reporting that they are adapting. Any change of trading arrangements of this magnitude will inevitably present issues during transition however, this survey shows that ultimately, businesses see the benefits of Northern Ireland’s unique position. They now need the support of a stable government to capitalise on the opportunities we now have to trade with other countries, which should be central to our growth strategy.”

 

Brian Murphy, Managing Partner, BDO NI added:

“After over 16 months of learning to live and work in a pandemic, I am delighted to see that this quarter’s Economic Survey is showing real signs of positivity and confidence in our economic future. There’s no doubt that there are still concerns within the business community, but for the first time in many months, they are being outweighed by the building momentum of the recovery.

“We must always remember that what we have experienced over the last year has not been a ‘market failure’, it has been driven by a most dreadful pandemic. As the restrictions have eased the economy has been able to restart and, in many cases, this restart has been on a better footing than before. 

“More businesses now reporting increased UK sales (34%) in last 3 months compared to those where sales are falling (24%). Confidence is returning and even investment prospects indicators, which had been particularly badly hit, are now positive. The share of businesses operating at full capacity has almost doubled to 44% for manufacturing and service industry has increased by circa 25%. These results are all hugely encouraging.

“It is concerning of course that many businesses still do fear the risk of closure, however it is encouraging that these numbers are reducing as more businesses begin to find their feet.

“Brexit and the Protocol remains an issue of concern, although it is positive that 67% of businesses feel that Northern Ireland’s special status provides us with opportunities. Furthermore, around half believe it will positively impact their business. That said, 89% of respondents are concerned about the impact of the Protocol on NI’s trading reputation with GB, and 87% internationally.

“With the building levels of confidence and optimism that we are seeing in this quarter’s results, it is now more important than ever that we communicate to the wider world what has been achieved here and why international businesses should invest in NI. We have an amazing product to offer and we need to share the story of our achievements with the rest of the world.”