Friday 23 August 2019

Services and factory output diverged in May

AIB chief economist Oliver Mangan. Photo: Chris Bellew/ Fennell Photograph
AIB chief economist Oliver Mangan. Photo: Chris Bellew/ Fennell Photograph
Ellie Donnelly

Ellie Donnelly

Service-sector activity last month expanded at the fastest pace since November on the back of new order growth.

This is in sharp contrast to manufacturing output in Ireland, which shrank in May for the first time since the Brexit referendum in 2016.

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AIB's Purchasing Managers Index (PMI) for the services sector last month shows the rate of new order growth quickened to a five-month high, amid improving economic conditions and more successful marketing efforts.

The services sector - which spans industries from bars and hotels to banking - is the country's most important.

Service providers said they had observed an improvement in demand conditions from the UK, European and Middle Eastern markets.

The services PMI posted 57.0 in May, up from 54.7 in April. Any reading over 50 is deemed growth.

However, a fall was signalled in the transport and leisure sectors, with businesses in the two industries posting a third consecutive monthly decline in foreign demand.

Meanwhile, sentiment towards activity over the coming year was at the highest level since January, as expectations of stronger future economic conditions boosted confidence.

Around 41pc of panellists surveyed predicted a rise in output over the next 12 months.

Oliver Mangan, AIB chief economist, said: "The index jumped to 57.0 for the month, up from 54.7 in April. It was far above the flash PMI readings of 50.9 and 52.5 recorded in the US and eurozone, respectively, for May, pointing to much stronger growth in the Irish economy."

As a result of firmer demand conditions, Irish service providers recorded a sharper increase in its workforce.

On the price front, the rate of input price inflation quickened in May to a three-month high, driven by reports of greater fuel and staff costs. Output charges also rose in May, with the rate of inflation the fastest in three months.

Meanwhile, the UK's services sector delivered a second consecutive month of growth in May, as new business increased for the first time in 2019.

The IHS Markit/CIPS UK services PMI showed a reading of 51 for May, up from 50.4 in April.

However, a number of service providers warned that Brexit-related uncertainty had "contributed to subdued business and consumer spending", according to the UK report for May.

Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank commercial banking, said: "While a small expansion in the sector is positive, we must be realistic - many services firms remain understandably cautious in the current environment."

Additional reporting PA

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