BUSINESS FIRST NORTHERN IRELAND ECONOMIC OUTLOOK 2017
Uncertainty will call us back to fundamentals in 2017
by Ian Sheppard , Chairman , IoD Northern Ireland
L
ast month , I noticed an advertisement in the FT for a symposium in Tokyo entitled …. “ Global Business Outlook
2017 – Confronting the Age of Disruption ”.
As I reflected on the year just gone and the one which stretches out in front of us , I was reminded again of the seemingly unprecedented pace of change in our evolving world as new technology helps transform the way we do business and brings both competitive opportunities and threats . In parallel , a series of “ political earthquakes ” from Brexit , the US election and the Italian referendum outcomes have come as shocks to the established international order . A year ago , few would have predicted such a backlash against the forces of globalisation that we had become accustomed to over the last decade or so .
As we ponder on what 2017 may have in store , it is clear the external environment remains uncertain , fluid and potentially volatile . Will Article 50 be triggered as the PM intends before the end of March and if it is , will the financial markets be unsettled again ? Will the flurry of key elections across the EU this year see a further wave of socalled “ antiestablishment ” outcomes that could again threaten the survival of the euro ? Will this be the year when China ’ s creditfuelled expansion finally has its reckoning ? What policy initiatives will the new US President introduce in his first 100 days and much closer to home , will we see a reversal in the fortunes of Sterling after being unloved for much of 2016 ?
Many questions , much unhelpful speculation and a lot that we don ’ t know . However , it is worth reminding ourselves what we do know .
At the macro level , the performance of the UK economy ( and the Northern Ireland region ) has demonstrated resilience , confounded earlier gloomier forecasts and confirmed that the immediate impact of the Brexit vote was very limited . Employment levels are near historic highs , the housing market is relatively stable and consumers continue to spend money . Furthermore , while there has been some market reassessment of interest rate prospects in late 2016 , we enter yet another new year not expecting a change in official interest rates anytime soon .
Of course , the structural challenges of weak productivity , high levels of inactivity and infrastructure and skills deficits continue to call for specific policy interventions while the longerterm outlook for the UK and regional economies will ultimately depend on both
how the UK / EU relationship is negotiated and reframed and the progrowth policy initiatives in areas such as business taxation , regulation and trade that are delivered in the new dispensation .
Positively , the consensus is that economic growth will continue in 2017 , albeit at a slower pace . A key consideration will be the response of businesses and households to the probable headwind of higher inflation and upward pressure on costs . The resilience of consumer spending is very likely to tested by an overshoot in inflation above the 2.0 % target later in the year while shortterm sector performance will largely depend on how closely profits are tied to currency fluctuations . Inevitably , this means winners and losers . Hospitality , tourism , crossborder retailing , agriculture and exporters ( with limited import content ) continue to welcome the shortterm boost to price competitiveness .
The greater emphasis on fiscal stimulus at both a national and regional level also offers encouragement to the construction sector , but only if plans can be actioned and delivered in timely fashion on the ground . On the face of it , a potentially volatile external environment in 2017 may not be conducive to either strategic thinking or business investment . For large corporate and global companies , we may see a continuation of share buybacks and dividend payouts , for others it may be the continued accumulation of cash on the balance sheet while for some it may mean selected acquisitions in markets with overcapacity and ripe for consolidation . In boardrooms , riskaversion and shorttermism may continue to rule while for SME ’ s the temptation to delay investment in capital or operations may be too great to resist . All business decisions of course have consequences .
To say we live in uncertain times is a gross understatement but business can and must go on . It was President Calvin Coolidge in the 1920 ’ s who said “ the chief business of the American people is business ”, recognising that whatever the shifting landscape , the provision of high quality goods and services for which others are prepared to pay a commercial price , is what makes the market economy function and helps generate the taxes to support public services .
While some will hardly need another reason to put off or cancel investments , I have no doubt that others , perhaps of a more contrarian spirit , are looking through the present fog and are already considering some longterm calculated risktaking . Whatever the external environment in 2017 , the fundamentals of business success haven ’ t changed the best companies are usually those that are well led , innovative , customercentric and who continue to invest in skills and development
Looking into 2017 , I recognize that identifying the downside risks can sometimes seem easier than spotting the opportunities . However , it may well be profitable to look a little closer !
May we all strive to lift the level of ambition in the local economy this year .
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