Tuesday 23 January 2018

Ireland's services sector sees light at end of Brexit tunnel

O’Connell Bridge House in Dublin
O’Connell Bridge House in Dublin
Louise Kelly

Louise Kelly

The country's services sector improved significantly in December - a growth that reaches near the strength of the sector prior to the Brexit vote.

The Investec Services Purchasing Managers' Index (PMI) improved to a five-month high of 59.1 in December from 56 in November, keeping the index well above the 50 mark that separates growth from contraction.

It had fallen to a three and a half year low of 54.6 in October from a near-perfect three year run above the 60 mark before the referendum. 

The sub-index measuring new export orders among Irish firms, which contracted for the first time since 2011 in November, rose to 54.1 from 49.8, a recovery some respondents put down to new business from Britain.

Britain's decision to leave the European Union is believed to have the biggest impact on Ireland because of our close trading links.

Following June's shock referendum result, growth slowed in both services and manufacturing.

But today's reading was also ahead of the euro zone average of 54.4 in December, which was the fastest increase in activity in five and a half years, as a weaker currency boosted demand for goods and services across the 19 euro states.

This follows the reading for manufacturing activity earlier this week which rose to its highest level in 17 months.

Investec Ireland chief economist Philip O'Sullivan said Thursday's report shows "increased customer demand from both at home and overseas".

"The New Business index rose at a sharp pace, with roughly four times as many panellists reporting an increase in new orders as opposed to the proportion who experienced a decline.

"The New Export Business index recorded a decline for the first time in 64 months in November, but last month it snapped back into positive territory, with some respondents indicating that higher new business from the UK was responsible for this transition – a welcome change given that Ireland’s closest neighbour had been viewed as an area of weakness by panellists in previous months."

"An examination of the Investec PMI data suggest that the rate of growth in activity across much of Ireland’s private sector picked up in late 2016 after the ‘soft patch’ endured in the wake of the UK’s vote for Brexit," he said.

"While noting that political developments have the potential to put a dent in the pace of growth once again this year, we draw comfort from the fact that the Irish manufacturing and services sectors proved sufficiently resilient to continue expanding in spite of all the challenges that the past year produced."

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