Monday 26 September 2016

Slowing export orders take shine off latest service sector PMIs

Published 06/04/2016 | 02:30

Exports slowing
Exports slowing

The latest Investec Services PMI Ireland report shows a slight acceleration of growth in March, with the headline PMI improving to 62.8 from the previous month's 62.1 reading.

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Growth continued despite a slow down in new orders to a five-month low, and a drop in new export orders to a level not seen since 2012.

The PMI is a simple measure that tracks private sector output in a gauge either side of 50, so 51 shows growth while 49 indicates a decline.

The index is regarded as a good forward guide, so a slowdown in the most forward looking new orders element can be a worry.

According to Investec, panellists it surveyed indicated that the UK remains a source of new business, but there were suggestions that the recent strengthening of the euro against sterling is starting to weigh on demand.

The good news is that Irish services firms continue to add to headcounts, clocking up an impressive 43rd consecutive month of employment growth, despite the moderation in new orders and global uncertainty,

Business sentiment ticked higher in March too, a surprise given the slowdown in orders and wider global uncertainty - including crucially around Britain's membership of the European Union.

In Britain, the latest PMI data yesterday shows the economy there appears to have slowed since the start of this year as worries about the global economy, government spending cuts and the EU vote take their toll.

Financial data company Markit said its UK PMI for services recovered only slightly last month after reaching its lowest in nearly three years in February.

One factor that may explain Irish businesses' apparent lack of concern with the so-called Brexit debate is the relatively high value of Irish exports - a sign of competitive strength.

Data published yesterday by the European statistics agency Eurostat shows that Ireland, along with the Netherlands, produces the highest-value exports in Europe.

Across Europe productivity, measured by value added per person employed, is highest in large enterprises.

Small enterprises, with fewer than 50 employees, make up the vast majority of enterprises Europe-wide. Half of Europe's employees work in small businesses, but in many cases are involved in lower value added and domestically-focused trades.

With a higher share of people working in bigger firms here it is no surprise that Ireland produce high value exports in Europe.

The prevalence of high end technology, bio-technology and pharmaceuticals businesses here may account for a high portion of that, however, Ireland's smaller firms - including micro and the relatively small number of medium enterprises - produce the highest value exports across the EU, according to the data.

Ireland is unusual in having small businesses that generate such high levels of value added exports. That's indicative of a high level of entrepreneurship - which Eurostat measures in terms of the number of young, high-growth enterprises focused on innovation and international trade.

Those high potential start-ups are seen as the Holy Grail for industrial policy, not only in Ireland but across Europe.

This country lags however, when it comes to the level of innovation by small enterprises, with Luxembourg, Italy and Germany all well ahead in terms of research and development.

Irish Independent

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