Following a challenging period, the Northern Ireland economy performed relatively well in the first half of 2024, economists at Ulster University can reveal.
Launching the Summer Outlook 2024, the Economic Policy Centre considers past and future wage growth, economic prospects and the outlook for the Northern Ireland labour market.
With a forecasted growth rate of 1.4% in 2024 and 1.7% in 2025 for Northern Ireland, the region’s economy is performing better than expected at the start of the year. This has been driven by strong growth in employment particularly in the Transport, Construction and Health sectors.
The Northern Ireland economy should outperform the UK as a whole, which is now forecast to grow by 1.1% in 2024. However, fortunes are expected to reverse as the UK economy is expected to grow faster than the local economy next year and into 2026.
Easing inflationary pressures and anticipated interest rate reductions by the Bank of England, alongside continued real wage growth, will boost economic growth in Northern Ireland in the near term, the economists report.
Yet economists warn that modest productivity growth will hold back longer-term prospects and has correctly been identified as a priority for both the new NI Executive and UK Government in the coming months.
Dr Myles Patton, Principal Economist at the Ulster University Economic Policy Centre, said:
“Several factors have allowed Northern Ireland to perform relatively well this year. Looking ahead, however, our tight labour market, ongoing economic inactivity and modest productivity levels will limit our future economic success. A broad range of policy interventions are required to create the conditions for sustained economic growth going forward.”
The Prospect of a Real-Terms Pay Rise
While wage growth has been strong in Northern Ireland in recent years, with higher inflation, the growth in nominal wages failed to compensate for cost of living pressures. Only full-time males saw their real wages increase in 2023, with others experiencing a decline, in particular female part-time workers saw their real wages decrease by 4.7% in 2023.
Looking ahead, real wages in NI are forecast to increase by 2.3% in 2024, reflecting continued labour market pressures, stronger economic growth and lower inflation. The April 2024 uplift in the minimum wage is also expected to reduce the spread between the lowest and highest paid earners, a gap that has increased in recent years.
Beyond 2024, without a marked increase in productivity, it is expected that annual real wage growth is likely to return to the 0.6% p.a., similar to the growth rate experienced for much of the last 10 years.
Dr Myles Patton, Principal Economist at the Ulster University Economic Policy Centre, added:
“The close correlation between productivity and wage growth reinforces the need for policy makers in both the new NI Executive, and the new UK Government, to focus on measures that boost productivity levels, including capital investment and ongoing development of the skills base.”
Labour Market Squeeze
Operating from its tightest ever position and with more demographic challenges to come, there is a need to harness underutilised spare capacity in the labour market, the economists report.
Recent UUEPC research found that of the 320k economically inactive in NI, 16% state they would like to work but face a range of barriers preventing them from returning to the labour market. This group of ‘hidden unemployed’, represents the largest pool of untapped labour in the NI economy, accounting for approximately 51k people.
Dr Myles Patton, Principal Economist at the Ulster University Economic Policy Centre, added:
“This diverse group require a broad range of supports depending on individual circumstances, such as help with childcare, addressing health problems and raising their employability skills. If their participation in the labour market is not facilitated, local firms will continue to experience labour market shortages that will ultimately hold back growth and waste the potential of our people.
"Northern Ireland’s future success is dependent on promoting inclusive growth, ensuring access to good jobs and opportunity for all groups across the region.”
Read the full Ulster University Economic Policy Centre: Summer 2024 Outlook report.