Slump could last five years and ruin hospitality trade
NORTHERN Ireland is facing a severe recession, with one economist predicting that it could last up to five years.
Jobs in hospitality are likely to take the biggest hit, with tens of thousands of roles at risk as disposable income falls in the domestic market and tourism decreases.
Business advisory firm EY has predicted a worst case scenario of 132,000 job losses in total here.
Finance Minister Conor Murphy yesterday said a “severe” recession is likely as the economy battles the impact of Covid-19 and the effects of Brexit.
Ann Mcgregor, chief executive of the NI Chamber, said that nearly three-quarters of members had already feared imminent recession due to the challenges of Brexit.
“Moving on, since Covid-19, there has been huge contraction in the economy leading to job losses, furloughing and companies taking on a large amount of debt,” she said. “As a result, businesses are concerned about a recession taking place this year and they won’t therefore be able to invest the way they did prior to Covid-19.
“Although a recession is defined as two quarters of decline in GDP, we’ve already received several glimpses of the economic decline Covid-19 will cause, with business confidence reducing at a substantial rate. Should this recession occur, it could take years for Northern Ireland’s economy to get back to where it was before the pandemic.”
Gareth Hetherington, economist and director of the Ulster University Economic Policy Centre, said the impact from a recession could be lessened the sooner lockdown is lifted, provided it is done in a safe manner. He predicted recovery could be complete by 2022.
Former Finance Minister Simon Hamilton, who is now chief executive of Belfast Chamber, said he agreed a severe recession was possible. And Ulster Bank chief economist Richard Ramsey said unemployment would turn into a more chronic problem than in the last recession.
“I would see an unemployment rate of 10% being reached. It only got as high as 8.3% the last time, but this time around the scale of the downturn is broader; for example the whole of the hospitality sector is affected,” said Mr Ramsey.
Manufacturing NI chief executive Stephen Kelly said that while most of the sector was back at work, capacity was down. “Most firms continue to have many staff on furlough as the customer demand just simply isn’t there at the level required to sustain their full workforce,” he said.
“Economic damage has been done and continues to be felt. The longer we are required, for good public safety reasons, [to keep restrictions] in place, the deeper the impact on the economy and on jobs.
“The sooner we can safely exit, the more jobs can be saved.”
Hospitality NI chief executive Colin Neill said around £600m of the industry’s annual £2bn income was from tourism. “We’re already looking at the potential of thousands of job losses as a direct result of closure as a result of lockdown. For the economy to tank for any length of time after that, hospitality will take a real hammering.”
He said the industry also needed a clear indication of dates when it can reopen. The Executive’s roadmap indicates hospitality will reopen in phase five, but does not give dates.
“Even the supply line for beverage is four to five weeks. There’s no fresh kegs of Guinness sitting out there, and it also takes up to eight weeks to bring up poultry supply and about six weeks for beef,” he said.
Mr Ramsey said hospitality would suffer due to a fall in tourist numbers. Air passenger traffic is not predicted to recover to pre-covid levels until 2023 or 2024. Social distancing will also hit capacity for many businesses, while working from home will also mean a fall-off in demand for coffee shops, for example.
“Hospitality is going to see a significant swathe of job losses, which we wouldn’t have seen before,” he said. In addition, recovery would be hindered by Brexit.
“Brexit and the hangover from Covid-19 are going to be speed bumps on the road to economic recovery.
“I would be more pessimistic about our ability for the labour market to recover than it did do at the last recession.”
In addition, he said the aerospace sector here was likely to be hit by job losses as the impact of a global fall in demand for air travel is felt: “Ultimately, I think it could be the end of 2024 or early 2025 before we’re back to a similar place to where we were. We’re looking at a four- to fiveyear climb out of where we are.”
Mr Hetherington predicted economic recovery in late 2021 or early 2022, giving a shorter recession than the 2008-to-2012 downturn. While he forecast an extended period of unemployment, he pointed out that employment levels have been at an all-time high up until now.
“That puts an increased onus on skills development and making sure that young people have the skills that are in high demand in the economy.”
He said Invest NI could also look to increasing Northern Ireland’s manufacturing capabilities to tap into a likely trend for more near-shoring and re-shoring, after the Covid-19 crisis exposed the dangers of an over-reliance on China.
But he said there was no question that a recession would arrive if it hadn’t already begun: “When you look at all the analysis, globally, nationally, or locally, it all points to a very severe recession. The key question is how long will this last for and that’s dependant on how long the restrictions remain in place.”
He said that of 200,000 furloughed roles, a lot will ultimately be lost: “The sooner the economy gets up and running again, the more likely it is that jobs will be kept.”
And he said a comprehensive ‘test, track and trace’ strategy would enable lockdown to be eased without impact on health.
“If that’s operating at very high volumes, that allows you to manage the spread of virus post-lockdown without need to reimpose strict restrictions.”
He added: “I think we need to have the bulk of the economy and work functioning again before the end of summer.
“You can’t put money before people’s lives but if you crash the economy you are also creating very significant public health issues. The money that makes the economy go around is the same money needed for strong functioning of the NHS.”