Northern Ireland’s economy will shrink by a “staggering” 7.5% this year, one of the country’s main banks has predicted.

Danske Bank reiterated warnings of a “sharp” decline in growth as social distancing restrictions prompted lower consumer spending and business investment dropped.

The forecasts were based on the assumption that the lockdown remains in place until somewhere between the end of May and the middle of June before gradually being lifted, with some social distancing measures expected to remain for a longer period.

Danske Bank chief economist Conor Lambe said: “Unfortunately it seems clear that we will experience a staggering decline in economic activity in Northern Ireland this year due to the impact of the coronavirus pandemic on consumer spending and business investment.

“However, once the lockdown measures begin to be gradually lifted, we should see the beginning of a recovery, with the range of recently announced government policy measures supporting the economy to get moving again.

“This recovery should continue into next year and we expect growth in 2021 to reach around 5%.”

In its latest Northern Ireland Quarterly Sectoral Forecasts report, Danske Bank said Northern Ireland is likely to experience a sharp decline in economic growth in 2020.

Restrictions on people’s movement have seen firms facing cash flow and revenue challenges.

Contraction in output is expected to be limited to the first two quarters of this year, with activity beginning to recover gradually in the second half of this year and into next year.

Mr Lambe added: “It is important to say that, despite the expected return to positive annual growth rates from 2021, total economic output may not return to its pre-coronavirus level until late in 2022 or into 2023.

“In addition, these forecasts are provided in a climate of extremely high uncertainty and the risks around our numbers are weighted to the downside.”

Due to lockdown measures, the accommodation and food (down 17%), arts, entertainment and recreation (down 16%) and education (down 14%) sectors are forecast to experience the largest falls in output this year.

The wholesale and retail trade sector has seen a sharp fall in activity in recent weeks and Danske Bank is forecasting that the sector will experience an annual fall in output of 8.5% in 2020.

Manufacturing and construction are also expected to experience sharp declines in output, with falls of around 12% and 8% this year respectively.

There is a risk that supply chain issues may affect their recovery.

Danske Bank said measures like the Coronavirus Job Retention Scheme should help to limit the number of job losses.

Employment is still expected to fall this year.

Danske Bank predicts the number of employee jobs will decline by around 2% in 2020 and that the annual unemployment rate will increase to around 5%, though it is likely to reach higher levels in the second and third quarters of this year.

The bank does expect to see some recovery in the labour market in 2021, with the number of jobs rising by 1% and unemployment coming down to about 5%.

The public sector has the strongest forecast for employee jobs growth this year.

The bank recognised the risk of lockdown measures continuing into the second half of 2020 or having to be reinstated.