The Northern economy's high dependence on the public sector is set to act as a "drag anchor" on growth in coming years as the British government cuts public expenditure in real terms, according to Dr Graham Gudgin, director of the Northern Ireland Economic Research Centre (NIERC). Dr Gudgin, who was addressing the annual Northern Ireland Economic Conference yesterday, said that the planned cuts would reduce growth and would lead, in particular, to a slower growth in employment. The North will suffer more than other regions of the UK because of its high dependence on the public sector. The Labour government plans to cut public expenditure by 1 per cent a year for the next three years. Dr Gudgin said five-year forecasts drawn up the NIERC predicted continuing steady growth at much the same rate as the UK as a whole, which he said, was "slightly disappointing considering Northern Ireland has been doing better than the UK through much of the 1990s".
He said GDP in the North would expand only slightly slower than the UK average annual rate of 2.7 per cent, primarily because the private sector is growing faster than elsewhere in the UK. The best growth of the five-year period is likely to be experienced this year with GDP expanding at 3.1 per cent. A rapid rise in consumer spending is being attributed to building society windfalls, increases in equity wealth and rising earnings. Dr Gudgin estimated that building society windfalls were worth some £500 million in Northern Ireland alone. Much lower growth is predicted for 1998 and 1999, which would reflect the impact of public expenditure cuts and the effect on the economy of the strength of sterling. Dr Gudgin said that, to date, exports had not been adversely affected by the strong sterling, but the impact would be felt over the next 12 months.
Dr Gudgin, who was speaking before yesterday's bombing in Markethill, Co Armagh, said that the North could lose as much as £500 million a year in the event of any security wind-down. He said he believed the current Labour government would not give a commitment to spend this money on other sectors in the North, as the previous Conservative government had done.
People were more realistic about the economic benefits of peace on this occasion, as opposed to the last cease-fire, when "many of the overblown claims of 1994 did not materialise, except perhaps in tourism". The North's tourism sector is likely to experience zero growth this year despite the renewal of the IRA cease-fire in July, according to Northern Ireland Tourist Board (NITB) predictions.
The NITB chief executive, Mr Ian Henderson, who was assessing the state of the sector, said some "modest benefits" had been seen since the renewal of the ceasefire, with hotel occupancy going up "moderately", but generally the euphoria of 1994 had not been repeated. Income from tourism in 1996 stood at £206 million sterling, a fall from the £214 million in 1995 (an increase of £31 million over the 1994 total).
