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North falls further behind in three-speed economy

Reaching out : The ‘Hands Across The Divide’ sculpture in Derry – cross-border cooperation may have increased, but there is still a considerable distance between the two economies on either side of the Border

Ireland’s economy looks set to continue growing, albeit more slowly than the blistering pace of recent years, a leading think tank has said – adding that wage growth looks set to accelerate through 2019, supporting domestic demand.

The Nevin Economic Research Institute (Neri) forecasts gross domestic product will expand by 3.9pc in 2019 after a projected 8.1pc this year and it expects average hourly earnings to rise by 3.4pc next year as the unemployment rate falls to 5.2pc.

“The economy is likely to be modestly overheating in 2019 in the absence of tighter fiscal policy or a macroeconomic shock such as a hard Brexit,” the union-backed think tank said in its quarterly outlook.

Neri said that the strong headline numbers flattered economic performance, noting that Ireland’s labour market performance was poor relative to its peers and its unemployment rate was higher than in 14 EU countries and that recent wage gains follow a decade of pay stagnation.

The top-line numbers also disguise a deep gap between the strong performance of foreign companies operating in the State and the domestic economy. Northern Ireland lags both of these by a considerable margin in terms of output, productivity and investment. “We note regional disparities in performance and the presence of three effective economies on the island: a split economy in the Republic made up of an apparently world-beating foreign-owned sector and a more modestly performing domestic sector alongside a laggard Northern Ireland,” said the think tank.

“Weaknesses in the domestic sector of the Republic and general performance in Northern Ireland raise questions about current policy aimed at boosting productivity on both sides of the Border.”

While foreign firms operating in the State are consistently more productive than domestic firms and better than the EU peer group, there has been little spillover into the locally-owned economy.

In the North, there has been next to none and only Belfast ranks above the average productivity ratio across the State. Nonetheless, Dublin’s productivity is 1-1/2 times that of Belfast. Weak productivity is also a feature of the UK economy.

Neri warned that any effort by Northern Ireland to copy the more successful policies of the State to draw in more investment were likely to be “futile” in the absence of any “real” cross-border initiatives and co-ordination.

“On absorptive capacity, there is evidence that Northern Ireland is underperforming in skills and that the economy may be incapable of co-ordinating skills demand and supply to meet the opportunities of foreign direct investment.”