Activity and new business in the services sector accelerated in December, although growth remained modest overall, the latest AIB Ireland services purchasing managers' index (PMI) shows.
The 12-month outlook among surveyed business remained below-par due to concerns of recession and inflation. Hiring levels were weak, but input price inflation slowed notably during the month to its lowest point for nearly a year.
Charge inflation eased to a four-month low but remained among the highest on record.
The headline services business activity index rose from 50.8 to 52.7 in December, with any score above 50.0 signalling an expansion in the output of the Irish services sector.
Despite the uplift, the pace of growth was the second-weakest registered over the present 22-month period of expansion, and the index was below its long-run average of 55.1 for the fifth consecutive month.
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"The AIB Irish Services PMI for December showed a modest pick-up in momentum in the sector, recovering some of the ground lost in November," said Oliver Mangan, chief economist at AIB.
"The business activity index rose to 52.7 from 50.8 in November, but this was still below the level of 53.2 recorded in October. Overall, the Irish services sector remains in expansion territory, unlike elsewhere.
"The flash services PMIs readings for December in the US, UK and Eurozone, stood at 44.4, 50.0 and 49.1, respectively, well below the Irish figure."
Growth was driven by strong performance in the technology, media and telecoms (59.2) and business services (55.1) sub-sectors, where growth rates were the fastest in six and three months, respectively.
Technology, media & telecoms was also the only sector to register an expansion that was stronger than the long-run average. Financial services (50.2) registered a near-stagnation in activity in December, while transport, tourism & leisure (44.0) posted a fourth successive decline in activity, albeit at a weaker rate than in November.
Overall, the stronger growth of total activity reflected a faster expansion in new business, with demand improving for only the second time in the past 10 months while remaining modest and below the long-term average.
Growth in new work was limited to technology, media & telecoms and business services, while new contracts from international markets increased only marginally last month.
Outstanding business rose in December, extending the sequence that began in March 2021, but the rate of expansion was the weakest over this period, reflecting the recent moderation in demand growth. Backlogs fell further in transport, tourism & leisure, but rose solidly in business services.
Employment expanded for the 22nd consecutive month, and the rate of job creation was above the long-term average but at the lowest level in 2022, reflecting uncertainty about the new year.
Expectations for activity improved since November but remained weak in the context of historic survey data, reflecting firms' concerns around a potential recession, the energy crisis and high inflation dampening demand. Confidence remained weakest in the key business services sector.
"Service demand growth quickened in Ireland during December, while remaining modest overall, with just a marginal increase in new export business. There was only a slight increase also in backlogs of outstanding business," Mangan continued.
"However, there was a further solid rise in employment, while, firms’ outlook for the next 12 months improved, recovering the ground lost in November."
Input price inflation further eased last month, continuing the trend seen since April, and the latest increase in input prices was the weakest since January.
"Businesses continued to experience strong upward pressure on input prices, with firms referencing higher utility and labour costs," Mangan said.
"The rate of increase, though, fell to an 11-month low, pointing to some easing in inflationary pressures. Higher costs continued to be passed on to customers. However, the pace of increase in charges fell to its lowest level since August, albeit this was still the tenth-highest on record."
(Pic: Getty Images)
