CEE’s Economic Insight

A weekly roundup of economic news from Northern Ireland and beyond

Northern Ireland

The week began with a rather depressing Ulster Bank PMI, which showed that business activity was down in Northern Ireland’s private sector in March at its sharpest rate in three years. This was based on a combination of factors – a significant decline in new orders in March and increasing input costs has led to order backlogs being depleted for the fifty-third month in a row, which has seen companies reduce their prices in an attempt to stimulate new business. Unfortunately, this measure has not stopped companies reducing their staff numbers for the fourth successive month. During the same period business activity increased across the UK as a whole, whilst employment growth was recorded across the UK.

Whilst the reasons for Northern Ireland’s poor performance are longstanding, rising inflation (see below), the small internal market and the continuing lack of demand from the Republic, are no doubt having a major impact.

It is for many of these reasons that the Executive is seeking to increase our exports to the parts of the world that are currently growing and developing a consuming population. And after the controversial visit of Liu Yandong, member of the Chinese Politburo last week, this week saw key members of the Executive visit the Persian Gulf and India on a mission to drum up trade for local business.

Official reports published this week by the Department for Finance and Personnel showed that production fell in the fourth quarter of 2011 by 0.3%. Manufacturing, the main element of the production index, fell by 0.9% over the same period. Overall production output remains some 9.1% below the peak recorded in quarter two of 2008.

Provisional results from the Index of Services showed that in the fourth quarter of 2011, output in Northern Ireland rose by 0.7%in real terms. The index remains some 16.8% below the peak recorded in Quarter 3 of 2008.

The latest Labour Market Survey, covering the period from December 2011-February 2012 was also published this week. It recorded no change in the number of employed (67.9%) and unemployed persons (6.8%) while there was an increase in the claimant count (6.7%) by 200 persons. It is worth noting that according to DFP figures, 8,000 fewer people were working full time in December 2011- February 2012 period compared to the previous quarter, whilst 2,000 more people are working part time compared to the previous quarter and there was an increase of 5,000 temporary workers over the same period.

The controversial issue of shale gas extraction made the headlines again this week, as an official report by the UK Government claimed that despite small earthquakes, 'fracking' should be considered safe. This will have bolstered those in favour of tapping the energy source and increasing our energy security, and disheartened those who are concerned about environmental and health costs. However, the local Minister for the Environment claims he will not be rushed into a decision by the report which only looked into the issue of earthquakes.

The impact of regionalism on energy prices was again illustrated this week as Northern Ireland recorded the highest petrol prices in the UK.

The Utility Regulator has concluded that the amount of money that NIE needs to maintain and run the electricity network is significantly less than NIE claims. If the Utility regulator’s proposals are enacted electricity bills could be reduced by £72 over the five years. NIE has previously claimed the network needs investment that would increase bills by £128 over the same period.

The sinking of the Titanic was marked at the beginning of this week with a mixture of remembrance and celebration for Belfast’s industrial heritage. However, there was no hiding the delight in the tourism sector as numbers at the Belfast Welcome Centre increased by 96% compared to the same period last year.

Finally, Easyjet has announced that it will open a new route between Belfast International and Birmingham beginning on 22 October 2012.

UK

Inflation rose ‘unexpectedly’ in March as the Consumer Price Index hit 3.5%, with higher food prices and the cost of clothing being held as the main culprits. However, this did not stop retail sales rising by 1.8% over the same period and many, including pensioners, will be looking at the policy of quantitative easing and its potential further repetition as one of the other culprits for the increase. The Bank of England now has an even more difficult job as it seeks to balance interest rates, growth, quantitative easing and inflation.  

The IMF further added to the confused picture by increasing its growth predictions for the UK from 0.6% to 0.8% stating – “In the United Kingdom, with inflation expected to fall below the 2% target amid weaker growth and commodity prices, the Bank of England can further ease its monetary policy stance,"

The fallout from the Budget continues to rumble on for the Coalition as controversies over charitable giving, the pasty tax and the 45% tax rate rumble on.

Republic of Ireland

Those who are currently undecided will decide the result of the Irish referendum on the European fiscal compact. A poll this week showed that 39% of people did not know which way they would vote, with 30% saying they would be voting yes and 23% saying they would be voting no. This means the political parties have a lot to play for.

Another poll, which will no doubt give Enda Kenny and many in Europe food for thought, showed that Satisfaction with the Irish Government dropped 14 points to 23%. Whilst support for Sinn Fein, ardent no campaigners, has risen to 21%.

As Apple announced 500 jobs in Cork the Taoiseach Enda Kenny said 96 per cent of measures outlined for the first quarter of the Government’s annual Action Plan for Jobs have been achieved.

Europe

Spanish bond yields neared 6% as investors maintained concerns about the country’s ability to implement austerity measures, grow the economy and address growing social unrest.

Although immediate concern over Italy appears to be less acute, Italian bond yields also reached 6%, which apparently has a psychological significance.  

Despite the backdrop, confidence amongst German businesses reached a nine month high in April as exports continue to grow.

The Germans, along with the rest of Europe, will be watching closely this weekend as the first round of voting in the French Presidential election is set to get underway. With the incumbent and centre right Nicolas Sarkozy, and his socialist challenger Francois Hollande, both polling strongly a result for Francois Hollande could have significant implications for the direction Europe takes especially in the medium term.

World

Two events this week may be reflected upon as significant points in the response to the financial crisis.

The first was a vote by 55% of Citigroup Shareholders to reject the bank's plan to pay its chief executive $15m (£9.4m) for a year during which its shares fell by 44%. This could mark a greater involvement by shareholders in the running of the banks and companies they own and potentially the type of business they do.

The second was the nationalisation of the Oil Company Respol by the Argentine Government. Whilst it is far from certain as to whether this move will increase Argentinian energy security, it is a clear two finger salute to the Anglo Saxon globalised shareholder model.

The outworking of both events will be extremely interesting and potentially very telling.