THE North-west economy has narrowed the gap but regional growth rates are still below the UK average.

Mr David Kern, NatWest Group's Chief Economist and Head of its Market Intelligence Department, said yesterday that the region has made considerable progress in restructuring its economic base.

But he believes further difficult adjustment and diversification is needed if it is to overcome its below average performance.

Mr Kern spoke to NatWest business customers from various parts of the North-west at a meeting at Manchester Airport, hosted by Wade Martin, Regional Managing Director, Corporate Banking for NatWest's North West Region.

Mr Kern said that since 1981 manufacturing employment in the region had fallen by 281,000 and the construction industry had also seen a large decline of almost 30,000.

But these declines had been largely offset by large-scale job creation in distribution, hotels and restaurants (a rise of 58,000), financial and business service (up 90,000) and public administration, education and health (up 70,000).

Mr Kern said: "Much of this restructuring, particularly involving growth in the financial and business services sector, stems from Manchester's consolidation as an important regional and commercial centre with a growing reputation in the provision of financial and other business support services.

"The continued strengthening and diversification of the economic base of the Manchester conurbation will consolidate the city's position as a major European regional centre."

He went on: "Other towns in the North-west have also made significant progress in diversifying their economies from traditional textile manufacturing and engineering - ambitious plans for further reconstruction and development are underway in many parts of the region."

Although Mr Kern believes the North-west is set to benefit from the current upturn of the national economy, he sees potential obstacles.

"Firstly, it may become more difficult to attract inward investment in an increasingly competitive environment, and secondly, there are already signs that the region's reconstruction plans are being jeopardised by skills shortages," he said.

Mr Kern declared: "Dealing effectively with these issues requires improved co-ordination across the region between the public and private sectors."

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