Business Irish

Saturday 7 December 2019

Irish services sector enjoys further growth as Eurozone PMI 'makes grim reading'

Pressure grows on ECB.
Pressure grows on ECB.

Colm Kelpie

Ireland's services sector enjoyed another month of strong expansion signalling the private sector recovery here is bedding in.

But the latest data for the Eurozone highlighted the fragility of the euro area's recovery, and in the UK, the services sector hit a 17 month low as growth slows.

In Ireland, further confidence in the economy helped contribute to an increase in new orders, according to the latest Purchasing Managers' Index for the sector.

The rate of expansion of new orders remained sharp, despite slipping back on last month, with new export orders also increasing.

It comes just days after data showed that Irish manufacturing activity expanded for the 17th successive month in October and at a pace only just shy of a 15-year high hit in August.

Philip O'Sullivan, economist with specialist bank Investec, said yesterday's report served as a further illustration of the recovery under way in the country's private sector.

"One near-term risk relates to the growth outlook for the Eurozone, where disappointing trends prompted us to trim our 2015 GDP forecast to 1.2pc recently," he said.

"While this week's Investec PMI releases suggest resilience in Irish exports to non-Eurozone markets, with 37pc of merchandise and 32pc of services exports going to the Eurozone, Irish firms are not going to be immune to any slowdown across the other countries that share the Euro."

And business activity in the euro area picked up less than expected last month despite much deeper price cutting.

Firms have now been reducing prices for almost three years and did so last month at the steepest rate since early 2010, just when the single currency bloc was sinking into the depths of a financial crisis.

Weak growth and further discounting will add to pressure on the European Central Bank as it battles to ward off deflation and bring inflation - at a meagre 0.4pc in October - out of what it terms the "danger zone" and back to target.

In Ireland, the seasonally adjusted business activity index reduced to 61.5, down from 62.5 in September. Outstanding business rose for the 17th month in a row, while the rate of job creation remained sharp as companies took on new staff to deal with higher workloads.

Input prices rose at the fastest pace in three months.

France's PMI sank further below 50 and Italy's suggested economic stagnation. The composite index for Germany showed the pace of growth had eased from last month.

"The Eurozone PMI makes for grim reading, painting a picture of an economy that is limping along and more likely to take a turn for the worse than spring back into life," said Chris Williamson, of financial information firm Markit.

And the UK is now also suffering from the weakening recovery internationally.

Britain's rapid economic recovery could slow markedly in the final months of the year after uncertainty about the global economy started to hit domestic businesses last month, the PMI there signalled.

Services firms such as banks, hotels and hairdressers, which make up the bulk of the private sector, saw growth slip to the lowest level since May last year.

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