Friday 9 December 2016

Services slide shows fragility of recovery

Published 04/02/2010 | 05:00

THE fragility of the domestic economy was highlighted yesterday following the publication of data which tracks how hotels, transport companies, lenders and other parts of the services industry are faring.

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The January survey of purchasing managers in the service sector plunged to its lowest level in six months, indicating that the economy lost further momentum.

The figures came as the Central Statistics Office revealed that the unemployment rate rose to the highest level in 15 years and a day after the Department of Finance said tax receipts fell 17.7pc in January from the same month last year.

"The latest data highlights how fragile domestic demand is in the Irish economy.

"If there is more data like January's, then the contraction in domestic demand will be even larger than we expect," said NCB economist Brian Devine, who calculates that the economy will contract 3.5pc this year. "Recessionary influences still loom large."

NCB, which compiles the survey of purchasing managers, noted that managers surveyed were cutting back on new orders, employment and profit estimates.

The fall could not be explained solely by last month's cold snap.

"The contraction in services activity was widespread," Mr Devine said. "More worryingly, the level of new orders fell back sharply."

Similar surveys conducted across Europe suggested the economy there continued to grow, although the pace of recovery was slowing.

In the US, the survey rose to the highest level since May 2008. The US figures were boosted by growing exports and efforts to stabilise inventories, but the recovery has yet to generate the jobs needed to boost consumer spending back to pre-recession levels.

The European economy's expansion showed signs of weakening as companies continued to cut jobs, discouraging consumer demand, but the effect was exaggerated by the snowy weather.

Activity

"The recovery is weakening, but maybe not to the same extent as the data may suggest," said Citigroup economist Juergen Michels.

"While the second half of last year was boosted by many temporary factors, January was equally hit by a one-off factor in terms of the very cold winter, damping economic activity."

The European index of services dropped to 52.5 in January from 53.6 the previous month.

Any reading above 50 signals the economy is expanding. In Ireland, the index dropped to 44.4 from 48.3. In the US, it rose to 50.5 from 49.8 in December.

The European Central Bank is expected to keep borrowing costs at a record low of 1pc to bolster a recovery when it meets today.

Eurozone data showed retail sales last Christmas were even weaker than in 2008.

The European Commission's retail sales index fell 1.6pc in December compared with a year earlier.

It is the lowest Christmas reading since 2005, and means three consecutive years of lower December retail sales.

Irish Independent

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