Services sector activity in Ireland increased at its slowest rate for 19 months and new business rose at its softest rate since March 2021 in September, according to the latest AIB Ireland services purchasing managers' index.
The index fell for the first time in six months to from 54.7 in August 54.1 in September, with any reading above 50.0 indicating an overall improvement, and the index remained below the long-term average of 55.1 during the latest survey period.
"The AIB Irish Services PMI for September showed that while activity continued to expand at a solid pace, the month registered the slowest rate of growth since February 2021," said Oliver Mangan, chief economist at AIB.
"The Business Activity Index fell to 54.1, down from 54.7 in August and 56.3 in July. Activity in Ireland, though, is holding up much better than elsewhere; the flash Services PMI readings were in contraction territory in the UK and Eurozone in September, at 49.2 and 48.9, respectively."
The trend in activity during the third quarter as a whole was the worst since the first quarter of 2021 when the economy was affected by a Covid-19 lockdown and public health restrictions.
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Fears around the impact of inflation on demand undermined the 12-month outlook among respondents, and rates of input price and charge inflation remained among the highest on record. Employment rose at a strong pace, but firms continued to report staff shortages.
For the first time in 2022, growth was not broad-based among the four monitored sectors, with activity in transport, tourism & leisure (49.3) falling month-on-month for the first time since December.
Technology, media & telecoms (53.6), financial services (58.0) and business services (55.1) also experienced slower rates of growth.
Demand for services increased for the 19th consecutive month, but at the weakest rate since March, and overseas demand was notably weak in September, weighed down by declines in the business services and transport, tourism & leisure sectors.
The rate of job creation was strong while easing to an eight-month low, reflecting moderating new business growth and hiring difficulties. Transport, tourism & leisure reported its first decline in staffing since January.
The 12-month outlook for the services sector remained positive, but the strength of confidence was the lowest for nearly two years and well below the long-run survey trend, with companies mentioning inflation and a shortage of disposable income as raising the risk of recession.
Companies also mentioned ongoing severe cost pressures in the sector, linked to energy and wages in particular, although the rate of input inflation was little-changed from August's six-month lower but still among the highest on record.
Similarly, the increase in prices charged for services was the sixth-highest since the survey began in 2000.
The seasonally adjusted Ireland composite output index registered 52.2 in September, up only slightly from 51.0 in August and indicative of the second-weakest rise in output in the current 19-month expansionary sequence.
The slight improvement in overall growth of activity reflected a much slower fall in manufacturing production, which was partly offset by a weaker increase in services business activity.
"For services as a whole, growth in new business remained strong, most notably in Technology/Media/Telecoms and Business Services, although new export business fell back to its weakest level since January," said Mangan.
"There was another significant increase in backlogs of outstanding business, which firms partly linked to staff shortages. In this regard, there was a further strong rise in employment, with the notable exception of Transport/Tourism/Leisure.
"Meanwhile, firms’ outlook for the next 12 months weakened further on concerns about rising inflation and the risk of a recession. Businesses continued to experience acute upward pressure on input costs, especially energy prices and wages.
"These continued to be passed on to customers in the form of higher price charges. The rate of increase in both input prices and prices charged remained very elevated in September, continuing to be amongst the highest on record."
The AIB manufacturing PMI showed similarly that activity in Irish manufacturing businesses continued to ease in September.
(Pic: Getty Images)
