Business Irish

Monday 19 August 2019

Services sector growth eases to 11 month low

Services sector growth eased to 11 month low in October (Stock image)
Services sector growth eased to 11 month low in October (Stock image)
Ellie Donnelly

Ellie Donnelly

Growth in the Irish services sector has eased to an 11 month low, according to the latest Investec Services PMI report.

The drop was driven by a fall in business confidence, with service providers the least confident since September 2016.

However, the 57.5 PMI reading for October (versus September’s 58.7 reading) is still commensurate with a sharp pace of expansion.

Any mark over 50 is deemed growth.

In addition, nearly four times as many companies reported growth in new business compared to those who experienced a softening in demand, while in terms of the export markets, the strongest growth last month was recorded from Europe and the US.

As a result of this strong demand, services companies’ backlogs of work accumulated at their fastest pace in 21 months.

In an effort to the backlog of work, firms have been adding to head counts, with the employment component posting growth for the 62nd successive month, with the data suggesting that Financial Services saw the strongest growth in hiring last month.

However, on the margins side, the news was less positive, with the rate of growth in input prices spiking in October to a six month high.

Panellists blamed higher salaries and increasing raw material costs for this.

In response to this, firms raised average prices charged, but the rate of increase here cooled to the slowest since November 2016. This moderation is likely to have been a factor behind the rate of increase in the profitability index slowing to the weakest since the period to end-February.

"Given the favourable economic outlook for the majority of Ireland’s key trading partners and the domestic economy, we are in the camp of those who expect 2018 to be another year of progress for the services industry," Philip O'Sullivan, economist at Investec, said.

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