Thursday 23 November 2017

Slowdown in services sector growth highlights exposure to euro crisis

Thomas Molloy

Thomas Molloy

THE services sector saw its first contraction in four months as banks and other financial institutions pulled in their horns in May.

The NCB Services Purchasing Managers index plunged to 48.9 last month from 52.2 in April as new orders stagnated. Any figure over 50 signals growth in a sector, while a figure under 50 signals contraction.

Media and telecommunciations bucked the trend to continue expanding.

The disappointing results may mark the beginning of a turnaround for an economy which has seen three months of solid growth in the manufacturing and services sector. Services are also suffering the effects of the euro crisis elsewhere in Europe, with the German economy posting the slowest growth in six months in May.

"Irish economic activity continues to fluctuate between expansion and contraction as the open nature of the Irish economy leaves it exposed to the economic climate abroad, which has once again weakened," NCB chief economist Brian Devine said.

The rate of growth in new orders from abroad was solid, although May was the weakest month seen so far this year.

A detailed breakdown of the index suggests overall new business fell slightly in May after three months of growth.

Exports

The good news was that exports remained strong with some respondents pointing to new export orders from the Middle East. Despite the slide, the level of positive sentiment remained almost unchanged from April. More than 44pc of respondents predicted that activity will be higher in 12 months' time, compared with around 16pc that predicted a fall.

Respondents indicated that demand remained fragile, with clients reluctant to commit to new projects, the report said. There was also a sharp and accelerated fall in profits as service providers struggled with a combination of rising input costs due to rising energy prices and falling output prices, the report added.

The survey covers the business services, financial services, technology media and telecoms sectors as well as the transport, travel, tourism and leisure sectors; but it does not extend to the retail or wholesale sectors.

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