Tuesday 24 January 2017

Hike in foreign business boosts services sector to five-year high

Published 06/12/2012 | 05:00

IRELAND'S services sector is booming. The sector which includes everything from banks and insurance to media and architects continues to expand at levels last seen five years ago as new orders flood in and backlogs build up.

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The latest survey of what companies are thinking and doing "provides much to be cheerful about", said NCB economist Philip O'Sullivan.

Financial services companies are now more confident than they have been since May 2010 while business services, media, telecommunications, transport and leisure are also much more optimistic than they have been for many months.

The reasons for this surge in confidence are not difficult to understand. Companies are reporting;

• Rising new orders which have now increased in five of the past six months;

• A sharp hike in new business from abroad;

• Backlogs of work rising faster than anytime since 2007;

• Employment rising at fastest pace in 63 months thanks to higher workloads;

• A fall in input costs;

• Profitability stable or rising for most.

These factors meant that the NCB Services purchasing managers index, which gauges business activity across 600 Irish companies remained at 56.1 for a second month in November as Irish companies remained upbeat about their prospects and won new contracts from domestic and foreign companies. The survey excludes retailers.

The Irish figures contrasted with gloomier numbers elsewhere although the eurozone's economic slump was a little less pronounced than previously thought.

Britain's dominant service sector saw growth at its slowest pace in nearly two years as new orders fell, suggesting the economy could start contracting again. The index fell to 50.2 from October's 50.6, confounding expectations for a rise to 51.1. After receiving a huge boost from London's hosting of the Olympic Games and extra working days, the UK economy escaped recession last quarter. But growth in the coming year is forecast to be weak.

Euro-area services and manufacturing output shrank for a tenth month in November, suggesting the single currency's economy may struggle to pull out of a recession as governments toughen spending cuts to fight the sovereign-debt crisis.

Composite

A composite index based on a survey of purchasing managers in both industries rose to 46.5 from 45.7, London-based Markit Economics said. That's above an initial estimate of 45.8 published on two weeks ago but still signals contraction.

But the PMI has lingered below the 50 mark that divides growth and contraction for all but one of the last 15 months and with no economic stimulus in the pipeline, there is little reason to expect a rebound.

France, Spain and Italy were the biggest drags on the eurozone economy through last month. Germany performed better.

"The eurozone's recession looks to have deepened in the final quarter, with GDP likely to have fallen by considerably more than the modest 0.1pc decline seen in the third quarter," said Chris Williamson, chief economist at Markit which compiles the figures.

Still, Mr Williamson said he sees "signs that the recession may have reached a nadir," noting that the final euro-area composite figure was higher than an earlier estimate.

"Services in particular surprised to the upside, contracting to the least extent for three months, while manufacturing output fell at the slowest rate for seven months," he said.

In Germany, the region's largest economy, the services gauge jumped to 49.7 from 48.4, exceeding an initial estimate of 48 and close to the 50 mark that separates growth and contraction.

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