Friday 22 September 2017

Slowdown shows services sector already bearing brunt of Brexit

Sean Duffy

Growth in the Irish services sector fell to its lowest level in three-and-a-half years last month, a strong sign that pressure brought about by Brexit is hitting the economy.

The latest Investec Services PMI shows a reading of 54.6 in October, down from 56.2 in September. That represents the lowest reading since 2013. The index measures economic health on a scale where readings above 50 show growth and those under represent contraction. The data is derived from questionnaires sent to 450 Irish private sector service companies in areas ranging from hotels to banking.

Key metrics across the economy are now are their lowest levels for a number of years, indicating the challenge for Irish policy-makers of mitigating the effects of Britain's decision to leave the European Union.

The recent fall in sterling and uncertainty are emerging as the major challenges to Irish businesses.

Indigenous Irish firms are being hit worst, with retailers near the border coming under particular strain over the past couple of months. Irish shoppers have been flocking across the border since the rapid decline in the UK pound.

Ireland's tourism industry had been performing especially well in 2016, but the latest statistics indicate that clouds are on the horizon in that sector too. The index shows that activity in transport and leisure, the category in which tourism is measured, slowed for the first time in 51 months.

In addition, the scale of the contraction was the sharpest seen since January 2012 - a period when Ireland's economy was at a particularly low ebb.

One source familiar with the sector said: "Anecdotal evidence suggests that some areas have seen a double-digit drop-off in tourist numbers from the UK over the past couple of months, with the weak sterling likely to be the main factor behind this." Job cuts were also registered in the industry for the first time in nearly three years.

Overall, job creation continued in the economy. However the past two months have seen the slowest rates of expansion since September 2012. On a more positive note, job expansion has now been evident for 50 consecutive months.

A key component of Ireland's economy - the export sector - grew last month, but worryingly, the rise was at the slowest rate since 2012.

The Irish financial services sector was the only sector which recorded a decline in business from abroad.

The rate of expansion in new business for companies also slowed last month, the fifth straight month of decline.

Philip O'Sullivan, an economist at Investec Ireland, said: "A particular concern within the data is that the new business component has now slowed for five consecutive months, with October's reading indicating the softest rate of growth since May 2013.

"A number of panellists reported that the UK's decision to leave the EU had caused a fall in new orders. Given this, it is no surprise to see that the new export business component expanded at its slowest pace since May 2012 last month."

The data also shows costs rising for Irish businesses, including fuel, labour and insurance.

Business confidence recovered slightly last month having hit a three-year low in September. Despite the worrying trends, almost half (49pc) of the businesses surveyed still believe their business activity will be higher this time next year.

Irish Independent

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