NI Chamber CEO says Executive must reinvigorate our stagnant economy, build new infrastructure, boost skills and lower the cost of doing business in 2020
Providing certainty around Brexit and reversing the damage that it and three years of paralysis at Stormont has caused should be the Government’s top priorities, according to the latest Quarterly Economic Survey from Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO. Other key concerns include reducing business costs, investing in infrastructure and addressing skills gaps.
The results suggest that delaying Brexit until 31 January has had a negative effect on almost a third of businesses (32%), who say it has had an impact on investment and growth plans, negatively impacting the performance of 25% of companies. Q4 19 results released today (14 January 2020), show that weak economic growth persisted in the final quarter of 2019. According to the survey, almost 3 in 5 members (57%) believe the Northern Ireland economy will contract in 2020 and they enter the year less optimistic than other years.
Trading conditions for local manufacturers remain very challenging. In total, 8 of 14 key manufacturing balances were negative in Q4 and Northern Ireland ranks in the bottom 3 UK regions for 12 of the 14 key balances. The sector’s domestic performance is particularly weak, with both sales and order balances negative for the last two quarters.
Investment intentions continue to deteriorate, with fewer manufacturers investing in capital and labour. The sector’s cash flow position remains precarious. Northern Ireland manufacturer’s cash flow balance is negative and lowest across UK regions.
However, some key balances did return to positive in Q4, including export sales and employment expectations (although they remain very low). There did also appear to be some easing on price pressures on the sector from raw materials costs.
The service sector recovered some ground in Q4 19 after a poor performance in Q3, with some signs of growth and confidence. Only 4 out of 14 key balances were negative in Q4 (compared to 8 in Q3). Employment indicators remained positive, with more services businesses taking on people than not. More businesses believe that turnover and profits will grow than contract in the next 12 months.
However, most key indicators remain weak and at their lowest for several years. Expectations around short term growth are patchy, with negative domestic and export order balances in Q4. The sector’s cash flow position continues to be challenging.
Fewer businesses were trying to recruit in Q4 2019, 46% compared to 60% in Q3. Manufacturers’ recruitment intentions were down significantly over the quarter, with 41% of manufacturers trying to recruit (Q3 72%), lowest across the UK regions. Some 53% of services were trying to recruit in Q4, slightly lower than Q3 (59%).
Recruitment difficulties have been a persistent and growing concern for members. However, in Q4 this did appear to ease significantly for local manufacturers with 58% finding it difficult to find the right people (Q3 82%). In services, 65% of members had difficulty recruiting (Q3 78%).
Business confidence among manufacturers remained particularly fragile in Q4 19. Services confidence did improve in Q4 after a significant dip in Q3. More services firms are positive about turnover and profitability over the next 12 months.
The survey asked members about the impact of Brexit on business performance and investment and growth plans.
According to the results, further Brexit delay until 31 January 2020 has had immediate and largely negative knock-on effects. Around a third (32%) say that the delay has negatively impacted on investment/growth plans, while 25% believe it has had negative consequences for business performance. Around 12% say the delay has led to increases in stockpiling.
Business view their own prospects as dependent on the type of outcome reached in any further negotiations. Around 36% view the current ‘Boris’ deal as detrimental to business prospects, twice the share of those that believe that this deal will boost business prospects (18%).
Commenting on the results, Ann McGregor, Chief Executive, NI Chamber said: “Northern Ireland’s overall trade performance is poor. Sales within the domestic market are weak and order balances are negative. Business investment has taken a particular hit over the last few years and that will have consequences for the growth and competitiveness of this region’s economy going forward. Cash-flow problems persist, as do recruitment difficulties.
“Given recent trading conditions, these results are unfortunately not surprising. Rather, they are confirmation of the starkly negative impact three years of paralysis at Stormont and continuing Brexit uncertainty had and continues to have, on companies across the province. While businesses are more positive about their own prospects for growth in 2020 compared to the wider economy, despite best efforts, their plans are weighed down by these external factors.
“Following the long-awaited return to devolution last week, the Executive must move fast to start reversing the damage and restore the confidence of businesses, consumers and investors – and make sure NI does not get left further behind. It is critical that they get the approach to trade right. As an export focused organisation, we welcome the focus on investing in business growth for the future. This includes the new Northern Ireland International Trade plan, the establishing of a Trade Advisory Board, a Trade Accelerator Plan and a “Made in NI” campaign.
“There needs to be immediate, substantial action to reinvigorate our stagnant economy, build new infrastructure, boost skills and lower the cost of doing business in 2020.”
Brian Murphy, BDO NI Managing Partner added: “Although ongoing scepticism for the economy as a whole continues, results show a modest confidence within both the services and manufacturing sectors for their individual business growth prospects for 2020. Around 3 in 5 (57%) believe their business will grow and 1 in 10 expect their business to grow strongly.
“In order for businesses to achieve aspirations similar to what they were in 2016, a number of long-standing issues need to be addressed; low levels of confidence fuelled by uncertainty, rising business costs and the skills gap, along with Brexit topping yet another Survey wish list.
“With a new NI Executive in place we now have local Ministers making decisions on these key issues for the first time in three years, as well as guiding us through the complexities of the next stages of Brexit. This is a welcome development for the business community, who have repeatedly urged for the return of local decision making to support and facilitate sustainable economic growth. The prospect of a Tourism Strategy, Skills Strategy and long-term multi- year budgets will provide much needed confidence and clarity for the industry.
“For many NI businesses the outcome of the UK’s new trade agreement negotiations will be critically important for their future plans. However, this should not delay us from exploring other opportunities in new markets; developing new and innovative products; and improving efficiencies and productivity within our own organisations”.