Business recovery remains ‘at the mercy’ of Covid-19

Business activity in Dublin’s private sector decreased in the final quarter of last year, and the outlook remains “at the mercy” of the intensity of Covid-19 transmission and the vaccine roll-out, according to analyst IHS Markit.

Following a slight increase in the third quarter, the latest purchasing managers' index for the capital from IHS Markit, produced for Dublin City Council, shows that output continued to rise in the manufacturing and construction sectors.

However, increased Covid-19 restrictions in October and November brought parts of the services sector to a standstill. The overall decrease was softened by the relaxation of restrictions in December.

The index was at 49.2. Any figure below 50 indicates contraction.

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Employment fell for the third consecutive quarter and, although remaining modest, the pace of job cuts was quicker than that seen in the third quarter.

The rest of the State posted a stabilisation of workforce numbers, with Dublin’s relative underperformance reflecting the dominance of the service industry in the capital.

Falling new orders

Looking forward, Dublin companies continued to record falling new orders in the last three months of the year. But while this is the fourth quarter in a row in which new business has decreased, the rate has moderated.

Having risen in the third quarter, the rest of the Republic also saw a drop in new orders in the final quarter, albeit modest.

The tightening of restrictions in response to the third wave of Covid-19, which has also shuttered construction, has meant a bleak start to 2021 for businesses in the city.

Andrew Harker, economics director at IHS Markit, said the Covid-19 pandemic “continued to take its toll on the Dublin economy in the final three months of the year”, with the lockdown in late-October and November hitting activity.

“The relative importance of services to the Dublin economy meant that the capital underperformed relative to the rest of Ireland over the course of the quarter,” he said.

“With Covid-19 cases rising sharply again in January, the first quarter looks set to be another extremely challenging time for local firms.”