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Service sector growth slows after seven-year expansion


IFSC: The financial services sector was the fastest-growing during September

IFSC: The financial services sector was the fastest-growing during September

IFSC: The financial services sector was the fastest-growing during September

Ireland's service sector has posted seven solid years of expansion, but now the pace of gains has started to slow as the economy approaches full capacity, according to a survey.

AIB's Service Sector Purchasing Managers Index reading for September, released yesterday, stood at 53.1, down from 54.6 in August. It marked the lowest reading since May 2013.

"That said, the rate of expansion was solid, with activity increasing on a monthly basis for over seven years," AIB said in its report.

A reading above 50 on the index still indicates an expansion from the previous month.

While the outlook for manufacturing has slowed sharply thanks to weaker global trade, the service sector has remained a bright spot. This is the case even in economies like Germany, whose heavy industry base of cars, chemicals and machine tools has been hit hard by the trade slowdown and the effect of Donald Trump's trade war with China.

Ireland, too, has seen a fall-off in manufacturing activity, with AIB's Manufacturing Purchasing Managers Index slowing for the first time since 2016. The index posted a reading of 48.7 in September, according to a release earlier this week.

While the drop in manufacturing activity has started to feed through into hiring in industry, AIB said that employment across the Irish service sector continued to increase during September.

The AIB report said that financial services was the fastest-expanding sector in September.

It has received a larger boost from Brexit than most other industries, as a number of banks have moved their operations here so as to continue to operate in the European Union once the UK leaves.

Service exports now stand at €180bn a year, up from just €37.1bn in 2003, and they now account for 45pc of exports from the State.

Looking forward, the AIB report said the service sector's business confidence was the lowest in almost eight years as Brexit uncertainty weighed on sentiment.

"One third of panellists were confident of a rise in business activity from present levels in 12 months' time, linked to expectations of higher new orders, product development initiatives and continued growth of the Irish economy," it said.

The economy looks set to beat official forecasts of growth of around 4pc this year, largely thanks to robust exports, although that is a sharp slowdown from the 8.2pc recorded in 2018.

That could turn to recession next year if the UK leaves the European Union without a deal on October 31, according to some forecasts.

Indo Business