Service sector activity growth continued to lose momentum at the start of Q4 2022, according to the latest AIB PMI survey data.
The bank said that demand growth through October remained strong, though below the trend shown since the second quarter of 2021. This was accompanied by a relative easing in inflationary pressures, although input prices and charges both continued to rise sharply overall.
The Services Business Activity Index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses.
The index varies between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.
The Index signaled growth for the twentieth successive month in October, but eased for the sixth time in seven months to signal a further loss of momentum.
In Association with
The latest figure of 53.2, down from 54.1 in September, was the lowest over the current sequence and below the long-run trend level of 55.1 for the third straight month.
Broker Davy commented: "Ireland's Services PMI clearly compares well with the flash euro area (48.2) and UK (47.5) readings, which are signalling contraction. The PMI surveys are consistent with Ireland’s economy showing a relatively resilient performance despite the likely recession in Europe through the winter."
Activity in Transport, Tourism & Leisure (45.1) fell for the second month running, and at the fastest rate since February 2021.
As was the case in September, three out of four sectors monitored registered higher activity in October. Financial Services (58.2) posted the fastest expansion for the fifth month running, followed by Business Services (54.7).
Growth eased and was only moderate in Technology, Media & Telecoms (52.1), although it posted the fastest growth in new business of all four sectors.
Irish service providers continued to report rising inflows of new business in October, and the rate of growth was strong overall. Anecdotal evidence linked new business growth to busier customers, new clients and new products and services.
A renewed increase in new business in Transport, Tourism & Leisure and faster growth in Financial Services was offset by slower gains in Business Services and Technology, Media & Telecoms.
The 12-month outlook for business activity rebounded from September's 23-month low to the highest since July.
Improved confidence
AIB said Improved confidence reflected planned new products and services and also hopes that current international crises such as the war in Ukraine, high energy prices and a weak European economy will abate.
Service sector employment rose again in October at a sharp pace. Companies in the Business Services sector continued to boost workforces at the fastest rate.
The rate of input price inflation eased to an nine-month low in October, although it remained among the highest on record reflecting strong upward pressure on labour and energy costs in particular.
Charge inflation eased since September but was still the seventh highest on record.
The seasonally adjusted Ireland Composite Output Index (weighted averages of comparable manufacturing and services PMI indices) registered 52.1 in October, little-changed from September.
Activity has risen continuously since March 2021 but since June the rate of expansion has remained below the long-run average.
Input price inflation remained sharp but eased to a 14-month low, with cost pressures again greater at service providers than manufacturers. Output price inflation remained among the highest on record.
Solid expansion
Oliver Mangan, AIB chief economist, commented: "The continued solid expansion in business activity in Ireland is in marked contrast to the trend elsewhere.
“The main components of the Irish survey were also quite encouraging. Growth in new business remained strong, with a notable marked rebound in new export business.
“There was another significant increase in backlogs of outstanding business, which firms linked to staff shortages as well as the good growth in new business. There was also a further strong rise in employment, with the rate of growth reaching a three month high.
"Businesses across all four sub-sectors continued to experience strong upward pressure on input costs, especially energy prices and wages. These continued to be passed on to customers in the form of higher prices.
“However, the rate of increase in both input prices and prices charged, while still elevated, did ease in October and are off their peak levels seen earlier in the year," Mangan added.
