Ulster Bank says North's economy will shrink by 2.5%

THE NORTH’S large public sector has failed to protect it from the recession according to a new report published today which predicts the Northern Ireland economy will shrink by 2.5 per cent this year.

The Ulster Bank’s latest Quarterly Economic Review warns Northern Ireland is likely to suffer further severe unemployment rises and house price falls as the economy continues to deteriorate.

Richard Ramsey, the bank’s Northern Ireland economist, believes unemployment could rise to as high as 7 per cent by the end of this year.

“While all sectors of the economy are expected to experience a marked decline in output in 2009 it is the weakening labour market and particularly the service sector that gives cause for the most concern,” Mr Ramsey added.

He said Northern Ireland’s employment growth over the last 10 years had been driven primarily by the business services and retail sectors.

“These two sectors have experienced sharp declines in output over the last year and this is now feeding through into significant job losses.

“We expect the number of unemployed claimants, currently 36,000, to reach 55,000 by the end of the year,” Mr Ramsey said.

The latest Ulster Bank review also predicts that there will be further gloomy prospects for the North’s property market this year.

Mr Ramsey said the average house price in Northern Ireland has fallen by between 24 per cent to 34 per cent over the last two years.

He expects that by the end of 2009 the average house value could be in the region of about £140,000 – 45 per cent below August 2007 peak prices.

The Ulster Bank economist said the rate of house building in the North is now at a “record low” and there is the potential for an even more severe social housing crisis in 2010.

Mr Ramsey said the construction downturn triggered Northern Ireland’s economic decline and therefore the recovery should also be construction-led.

“The local construction sector needs the Northern Ireland Executive to deliver on public infrastructure investment plans now more than ever.

“The Executive is constrained in what it can do in this regard because its investment plans were reliant on capital receipts and asset disposals, which won’t now be realised,” he said.

Despite the gloomy predictions there is one glimmer of hope for the North’s economy in the latest Ulster Bank economic review.

It points out that because Northern Ireland entered recession before the UK as a whole, it will recover more quickly, with tentative growth forecast for 2010.