Last week, all eyes and ears were on the US Federal Reserve’s Chair Janet Yellen as markets braced themselves for the first interest rate hike in almost a decade. In a rate decision that was broadly seen by economists as something of a ‘coin toss’, the Fed’s policy-setting committee chose to keep rates on hold at almost 0%. This means that the Fed has yet to increase interest rates from their record lows of 2009.

It is clear that the US central bank is becoming increasingly concerned about global economic and financial market risks – and it is not alone.

Last week, the Bank of England Governor, Mark Carney, acknowledged that risks to the health of the global economy have intensified as China’s economy faltered. Nevertheless, Mark Carney still expects the case for beginning interest rate hikes to come into sharper focus at the turn of the year.

The Case for Raising UK Rates

The Governor’s view, however, is not shared by his Chief Economist and MPC colleague, Andy Haldane. Rarely does a speech in Portadown catch the attention of financial markets, but Haldane’s did on Friday when he addressed an audience of local business people. He said that “the case for raising UK rates in the current environment is, for me, some way from being made”. Indeed, according to Haldane, given the downside risks to growth, there is every chance that the next interest rate move could be a cut instead of an increase.

Outside the roller-coaster ride in equity markets last month, there has been a steady stream of evidence signalling that a global economic slowdown is in train. The vast majority of manufacturing PMIs around the world indicated weaker growth in August relative to July. Furthermore, 11 manufacturing PMIs (including those of China, Russia, Brazil, France and Canada) signalled contraction in August.

Over the last month it was revealed that Canada had joined Russia and Brazil in recession between April and June. Meanwhile the US economy’s trade with the Rest of the World contracted in the first seven months of the year. This is not surprising when you consider that global trade is now growing at its slowest rate since 2009.

So how is Northern Ireland faring?

Clearly, Northern Ireland cannot insulate itself from global economic developments. Whilst trade with China is relatively small, it is the wider global economic slowdown that is more concerning. Northern Ireland firms, particularly our manufacturing businesses, are exposed to markets that are very reliant on China. For instance, Northern Ireland companies that supply equipment to the quarrying sector benefited from the commodity boom that was driven by China.

Last week’s Northern Ireland manufacturing output figures showed that overall, the sector was performing better than the UK as a whole. Despite a quarterly decline of over 2%, output was up 1.6% on the same quarter a year ago. The equivalent growth rate for the UK manufacturing sector was just 0.6%.

The quarterly decline in Q2 was due to an unusually large increase in Q1, stemming from the Transport Equipment sector (which includes aerospace). This sub-sector posted a quarterly rise in output of almost 14% in Q2. Given the outsized gain in manufacturing output in Q1 (+3.8% q/q) a decline in Q2 was inevitable. What is important is that the underlying trend, stripping out Q1, showed strong growth (+1.6%) between Q4 2014 and Q2 2015.

Manufacturing output has increased by 20% since it troughed in 2009. Output in Q2 is just 3% below the levels that prevailed at the peak before the last global downturn. However, some sectors are experiencing much higher levels of output now than before the last global downturn. In particular, Transport Equipment (which includes Wrightbus and Bombardier) output recently hit a record high, with output more than doubling relative to its trough in 2009. In Q2, output was one-third above its pre-downturn peak seven years ago. The Chemicals & Pharmaceutical Products sector (which includes Randox, Norbrook and Almac) has posted declines in output in recent quarters. However, output is still 27% above the levels that prevailed even years ago.

Lower Levels of Output

There are only two sectors within Northern Ireland’s manufacturing sector that are experiencing lower levels of output in Q2 2015 than during the trough of the global economic downturn.

These are the Food, Drink & Tobacco (FDT) sector and Wood & Paper Products. According to last week’s figures, FDT output amongst NI firms was 18% lower in Q2 2015 than six years ago. Conditions for this sector are much less favourable today than six years ago. The Euro / Sterling exchange rate for one has moved from 91.5p in Q3 2009 to 72.3p today. The collapse in milk prices, alongside Russian sanctions on EU food imports, has also hit the dairy sector.

Looking ahead, the second half of 2015 is likely to see more subdued manufacturing activity amongst Northern Ireland firms. The Ulster Bank PMI indicated a notable slowdown in manufacturing output and new orders growth in August. Over the next two weeks, financial markets will be closely watching the manufacturing PMIs for September, which are expected to show a further slowdown in activity. Northern Ireland is expected to follow the same trend.

Overall, mounting pessimism concerning global growth is drawing more and more comparisons with 2009. From a Northern Ireland-perspective, the economy was more insulated to a global downturn six years ago than it is now. Public expenditure growth and a deferral of austerity shielded Northern Ireland more than elsewhere. Back then the economy enjoyed political stability with the economy set as the number one priority. Comparisons between then and now couldn’t be starker on all of these fronts. Furthermore, households and corporates benefited from the Bank of England slashing interest rates to 0.5%. Linked to this exporters benefited from the sharp depreciation in sterling. This time around, however, Northern Ireland faces more headwinds than tailwinds. Northern Ireland would love to be in China’s position of being able to slash interest rates and unleash a fiscal stimulus. However, the UK played these cards already in 2009.

Post by Richard Ramsey, Chief Economist, Northern Ireland, Ulster Bank Group Communications. Article appears in today’s Irish news Business Insight.

This article is also available on www.ulstereconomix.com

Recent posts include:
NI heading for recession? Podcast with Richard Ramsey and John Simpson 
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The post Global Conditions for a Rate Hike are Still Not Alright Said Fed appeared first on Small Business Can.

We talk to former winners of the Ulster Bank Business Achievers Awards to learn more about how winning the award has impacted on their businesses.

In this post we speak to Social Enterprise Award winner The Food Hub

An initiative of Drumshanbo Community Council, The Food Hub is a voluntary community group that converted an old food factory into an enterprise centre for food and drink companies. Designed to address the needs of food group manufacturers and to attract enterprise to their community, the food production facility tailors to entrepreneurs who may not have the initial seed capital to invest in a start-up production facility, and to existing businesses wishing to expand who demand greater cost-effective production capacity as their sales volume increase.

Established in 2007, the Food Hub also offers sectoral training programmes for the food sector; from start your own food business programmes to hospitality operations. The Food Hub employs over 40 people across eight tenant companies.

What was your start-up day?
We had our official opening on October 12th 2007. Not the best timing given the economic climate at the time but we survived a few lean years to see things come together in the last 18 months or so.

What motivates you?
As this is a community initiative it’s all about creating jobs and encouraging enterprise in the local area with the ultimate aim to enable people to earn a living in their own area.

What keeps you up at night?
Thankfully we’ve gotten over that stage!

Social Enterprise Award Winners, The Food Hub

What’s been the most surprising part of running the business?
Because of the nature of running an enterprise centre with several different businesses, one of the big surprises was how supportive and co-operative companies have been with each other.

What’s been the most challenging for you?
Undoubtedly the first 3 years when we really struggled with low occupancy and had a couple of business failures here that had a big impact. We had to borrow money to complete the project and meeting that obligation without the revenue to support the business was very difficult.

And the most rewarding?
Definitely seeing over 50 people come to work every morning in a building that was derelict 10 years ago and contributing nothing to the local economy.

What is one mistake you’ve made, and what did you learn from it?
Trying to do everything ourselves for financial reasons – there are times when you have to accept you don’t have the expertise for certain jobs and must pay those that do.

What are some of the characteristics of people that have been successful at your company?
Single mindedness is a common trait among those businesses that tend to succeed. Those that refuse to be side-tracked by the bureaucracy of setting up a new company usually emerge as winners. It’s like Henry Ford said:” Whether you think you can or think you can’t, you’re right”.

What are you most excited about for the future?
We’re now looking at a new phase of the project whereby we hope to become a food tourism destination by developing visitor attractions and hopefully creating more jobs and in the process pulling in visitors to this region.

Any amazing families, partners, friends behind the scenes you’d like to thank – how did they support you in the early days?
Like all voluntary projects it was only possible because of the support of families and friends but they are too numerous to mention.

What doors has winning the Ulster Bank Business Achievers Awards opened for you?
Certainly has raised our profile and provided a level of recognition that wasn’t there previously.

What was the biggest benefit for you winning this award?
I think the acknowledgment of the work carried out to date on a national stage has led to an increase in confidence in the group that will hopefully lead to further ambitious developments in the years ahead.

The post What is it Like to Win the Business Achievers Awards? – The Food Hub appeared first on Small Business Can.