State urged to be open about cuts or risk confidence drop
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A senior economist warned yesterday that the Government must be upfront about pending tax changes and spending cuts or risk destabilising confidence in the economy.
Welcoming growing optimism among Irish service sector firms over future prospects, NCB economist Brian Devine cautioned that the Government could pose a destabilising threat to confidence, pointing to the need for transparency regarding upcoming taxes and cuts.
"The danger is that leaks (either fact or fiction) to the media regarding future tax hikes and expenditure cuts cause consumers and business to postpone spending," he warned.
He was commenting on the release of the latest NCB Purchasing Manager's Index (PMI) survey on the key services sector which shows the pace of decline in business activity fell to its slowest in over a year during June.
In a continuation of a positive trend from previous surveys, companies expressed optimism about future prospects for the third time in four months.
In Ireland, the NCB PMI for services, compiled by research firm Markit Economics, rose to 42.5 in June from 39.5 in May -- the highest level since May 2008. Crucially, the forward-looking gauge of business expectations rose to a nine-month high of 54.8.
Diverse
The survey, which covers firms as diverse as banks, airlines, hairdressers and restaurants, is based on a neutral reading of 50, with anything below marking a contraction and above an expansion in business activity levels.
The PMI survey's employment index shows that firms shed jobs for the 16th successive month, although the rate of job shedding in June was the slowest since October 2008. Mr Devine said it was encouraging that optimism among service sector firms is gradually improving and added that the pace of decline is likely to be less severe as pessimism fades.
Activity in the 16-member euro region fell to 44.7 from a seven-month high of 44.8 in May. Markit said companies across Europe have been forced to cut output and eliminate jobs to weather the global slump, prompting consumers to trim spending.
Unemployment in the euro region increased to 9.5pc in May from a revised 9.3pc in April, the European Union statistics office said on Thursday.
A survey of the UK service sector showed activity grew in June for a second month, suggesting Britain may be starting to emerge from recession.
An index based on a survey of about 700 UK service companies by the Chartered Institute of Purchasing and Supply was little changed at 51.6 in June from 51.7 in May, Markit said.
The European Central Bank has cut interest rates to a record low of 1pc and governments have pumped billions of euro into their economies to revive growth. Even so, the ECB expects the euro-area economy to contract by 4.6pc this year and 0.3pc in 2010.
- Pat Boyle
