Heading into 2016 it is difficult to see the positives of investing, particularly when the market fell by over 2% on the first day of trading.
On the flip side, the UK gave a fairly robust performance in 2015, with a near-trend GDP growth of 2.5%, marching ever onward to full employment. There are also a number of other early indictors that would lead one to believe that this should continue through 2016, such as increasing job and wage growth and lower expenditure as a result of the lower oil prices. However, the most important factor of all of these is that the UK consumer is feeling much more optimistic compared to their global counterparts, and is more likely to spend rather than save.
But what if you are nestled in a part of the United Kingdom, separated by water and from the powers dictating fiscal policy, but joined by land to the European Union? Sometimes in Northern Ireland it feels like London may as well be on the other side of the world.
GDP growth for the region in 2015 was forecast at 1.6%, the lowest of all the UK 12 regions. An entire thesis can be written on the debate over the effectiveness of local politics and the devolvement or lack of it to Stormont, but the reality is that Northern Ireland (like the North of England and Wales) will not be able to set its own interest rate policy, and taxation rates will not become ‘localised’ certainly for this year.
For all the positives in the UK economy, Northern Ireland will continue to have its own challenges in 2016.
Government policy on continued fiscal tightening will no doubt have an impact on the consumer. If future announcements of budget cuts or reduction in public spending is a surprise to the UK consumer, this will have a negative impact on financial markets.
However widely anticipated, any policy change which leads to lower government spending, an end to falling prices, and rising interest rates, will all have an impact on economic growth. Northern Ireland will remain below trend in part due to its continued reliance on the public sector (which equates to 26% of total employment here).
In terms of comparison to the UK, Northern Ireland has lower labour productivity, lower pay and a higher level of economic inactivity. Some light at the end of the tunnel will come in the devolvement of corporation tax powers in 2018, when the Northern Ireland corporation tax rate will be cut to 12.5%, compared to the UK which is anticipated to be 19% in the same year. This will make the region more competitive with Southern Ireland at a current rate of 12.5%. After all, it is only two hours down the road and one of the biggest challenges to inward investment in the region.
At the beginning of the year the Northern Ireland Assembly summed up that NI can be ‘viewed as having a low growth, low productivity, and low wage economy, with the additional problem of high levels of economic activity that are apparently resistant to positive changes in the economic cycle’. Talk about the January blues!
But what does this really mean for the Northern Irish investor? Well you would be much the same as a London investor or one in the states or one in Hong Kong. The globalisation of markets means we can participate in any region without the influence of what is happening down the street.
Northern Irish businesses don’t tend to feature in the main indices so we can focus on what is happening beyond our shores. Global growth is forecast to be better than last year, even if it is only a tiny bit. Rising inflation and interest rates should be good for equities and choosing large multi-national companies with good cash flow management should help to negotiate the downside risk of volatility.
The timing and outcome of the EU referendum will no doubt create some uncertainty for the markets. A vote to leave could have foreign investors questioning their exposure to UK assets, which could affect bank funding costs leading on to influence interest rate policy. Uncertainty though can be viewed as opportunity.
The biggest challenge for the Northern Irish investor will be overcoming their own emotive response, separating how it feels at home from the opportunities away from our shores. It doesn’t seem to matter what your postcode is, the global investment outlook remains the same regardless.
This content is sponsored by JohnstonCampbell, one of the longest established financial management companies in Northern Ireland. They have over 40 years of experience in managing personal and corporate investment portfolios ranging from £100,000 to £30 million tax efficiently for individuals, businesses and trusts.
For more information on JohnstonCampbell and how they can help with your financial planning, please visit www.johnstoncampbell.com or call them on 028 9022 1010.
19/01/2016
