After a three-month downturn, activity in the services sector stabilised in the last quarter of 2020, according to the latest AIB Services PMI.

Outstanding business increased for the second month in a row, and employment in the sector rose for the first time since February. New business fell further, but companies grew more confident about the 12-month outlook as a result of positive vaccine developments. Overall business sentiment, too, was at its strongest since last February.

The Services Business Activity Index rose sharply in December to 50.1, from November's five-month low of 45.4, and three out of four sub-sectors registered growth in December. The fastest rate of expansion was in Financial Services, (53.3, ten-month high), followed by Technology, Media and Telecoms (TMT, 50.8, two-month high) and Business Services (50.6, two-month high).

However, Transport, Tourism and Leisure registered another sharp decline in activity, but not as sharp as during the previous four months, at 43.8.

Although new business fell slightly in December, the 12-month outlook strengthened as firms expected positive vaccine developments to allow business levels to approach 'normal' levels by the end of 2021. Overall expectations were the strongest since last February, but remained weaker than the long-run survey average.

In Association with

Service sector employment grew in the final month of 2020, ending a ten-month period of job shedding that began in March when the first Covid-19 restrictions were introduced.

Job creation was seen in the TMT and Business Services sectors, while a stable trend was evident in Financial Services. Transport, Tourism and Leisure saw further job losses.

Encouraging Trends

Chief economist Oliver Mangan said: "Overall the December PMI points to still subdued activity levels in the services sector and remains well below historical norms. The volume of new business fell for a fourth consecutive month, albeit modestly, with new export business weakening further in particular.

"However, there were some encouraging trends in the December data. Employment expanded for the first time since February. Firms linked the rise to greater workloads, with the volume of outstanding business increasing for the second month in a row as Covid restrictions were lifted. Pressures on margins eased, with the rate of growth in input prices slowing, while output prices rose for the third time in four months.

"Sentiment in regard to the 12-month outlook for activity strengthened again, climbing to its highest level since February. Firms are hoping that the positive news on vaccines will allow for a return to more normal business conditions over the course of next year."

The Composite Output Index rose sharply to 53.4 in December, from 47.7 in November, signalling expansion in activity following three successive declines. The overall growth in output reflected a stronger increase in manufacturing production and the stable trend in service sector activity.

New business rose for the first time in four months in December, despite a further decline among service providers. New export business continued to fall, though marginally, while private sector firms expanded their workforces for the first time since February. The rate of job creation was broadly in line with the long-run series average. Manufacturing employment increased at the fastest rate since April 2019, while service providers increased headcount for the first time since February 2020.