Northern Ireland's economy is likely to expand by 3 per cent this year despite a number of structural problems, according to AIB's Quarterly Economic and Business Review.

Industrial development in the North has been characterised over the past three months by regular corporate lay-offs and redundancies on the one hand; and by a number of expansions, inward investment projects and continuing job creation by development agencies on the other, it says. The publication concludes that Northern Ireland is now in transition from a traditional to a modern industrial structure.

First Trust Bank, the trading name of AIB's Northern Ireland operations, conducted the review - in advance of confirmation of the latest difficulties at Harland & Wolff - and the authors identified a recovery in business confidence, coinciding with the establishment of the new executive at Stormont. The crisis in agriculture has deepened in recent months, says the report. Businesses based in the North are facing severe competitive pressures from across the Border, it adds. The strength of sterling and widening excise duty differences have had a serious impact.

Labour market conditions have continued to tighten over the past three months and unemployment has fallen to 5.9 per cent. Job losses in textiles, clothing and food sectors have been more than offset in the growth sectors within the economy.

A parallel assessment of the economy in the Republic says tightening labour market conditions do not seem to have inhibited its growth rate. However, skills shortages are becoming acute in high-tech industries.

AIB Group Treasury is forecasting a modest slowing in the pace of export growth to 13 per cent from 15 per cent in 1999. As a result AIB predicts GNP growth slowing moderately to around 7.25 per cent from 8 per cent in 1998 and 1999.