Recovery has not yet started in North

BELFAST BRIEFING:Impending public spending cuts and the return of stamp duty could spell trouble, writes FRANCESS McDONNELL

THERE HAVE been glad tidings recently from some high street banks in the North to the effect that the recession is now behind us.

In reality, there appears little evidence on the ground that people and businesses in Northern Ireland think the worst is really over.

The early morning traffic on the M2 motorway, the main route between Derry and Belfast, is a good illustration as to what is really going on in the local economy at the moment. This notoriously busy stretch of road was once choked at daybreak with builders’ vans full of sleeping construction workers on their way to sites in Belfast.

Now their drastically reduced numbers on the M2 highlight the continuing decline in the local construction sector and the seemingly unstoppable job losses that it continues to suffer.

A new industry report published today by the Royal Institution of Chartered Surveyors (Rics) suggests house sales are beginning to show signs of a recovery in the North as first-time buyer and investor confidence improves. But Rics admits that the local housing market is far from what it would describe as “normal” transaction levels.

Lisburn estate agent and Rics Northern Ireland spokesman, Tom McClelland, says there is concern that impending public spending cuts and the move to end the stamp duty holiday could deliver a setback to an already struggling market.

Because of the importance of the housing market in the local economy, McClelland believes many sectors are watching to see if the new year will deliver further rises in transaction volumes.

Latest research from Ulster Bank supports anecdotal indications that the construction sector continues to suffer the fallout of the economic downturn. According to the bank’s chief economist in the North, Richard Ramsey, all sectors bar construction showed signs of stabilising in November – ending a run of 23 months of falling levels of business activity.

He is not alone in seeing some light at the end of the tunnel as far as the recession locally is concerned. Angela McGowan, Northern Bank’s chief economist also believes the evidence points to the Northern Ireland economic contraction ending in the third quarter of 2009.

But at least one local economist says he would be hesitant about calling the recession over as far as the North is concerned. Alan Bridle, head of economics and research at Bank of Ireland Northern Ireland, says recessions are defined not in terms of quarterly growth rates but in terms of jobs.

In his opinion, based on his own personal discussions with a number of businesses across a range of sectors, demand is stabilising – at lower levels. But he warns that is not the same as saying “recovery has commenced”.

Bridle says that, for business profitability and employment, it is the level of output rather than the rate of growth that is more significant.

He is also concerned that just as different sectors of the economy went into and will emerge from recession at different times, different parts of the North may remain depressed for longer than others.

Bridle says mid-Ulster, which lies just at the end of the M2, has been “particularly vulnerable” to construction/property downturn, while Belfast has been harder hit by the decline of business and professional services.

The decision of the British chancellor to increase national insurance contributions by half a percentage point from April 2011 is unlikely to help in heading off further trouble for the North’s economy. The move has been widely criticised in the North.

Francis Martin, managing partner of accountancy firm BDO in Belfast, says the cost of employing staff will rise as a result, while Wilfred Mitchell, from the Federation of Small Businesses has described it as an “attack on jobs”.

In real terms, Glenn Roberts, a senior partner at Deloitte Belfast, said workers in the North will see tax allowances and thresholds frozen at 2009-10 levels which effectively meant no pay boost in April 2010.

It is difficult to see how the chancellor’s actions can do anything but cause further trouble for Northern Ireland, particularly given the fact that there has been a record increase of 24,000 people joining the jobless queues in the past year.

There is no end in sight to the North’s unemployment woes. This week Stream International, the US call centre group, made 300 people in Derry redundant.

Perhaps the chancellor might have considered incentives to create jobs rather than introducing moves that will penalise firms actually trying to help the North’s economy. Either way it is of little comfort to Stream’s former employees today.