Activity in Ireland’s services sector accelerated again in May but cost pressures linked to wages and fuel remain “elevated”, according to AIB.
The bank’s latest purchasing managers index (PMI) for services rose to 55 in May from 53.3 in April, signalling a faster increase in Irish service sector activity. A reading above 50 indicates the sector is expanding, with the latest uptick was linked to new business growth.
“Overall, Irish firms continued to report rising levels of new business, and this was linked to solid domestic and international demand, particularly from Europe and the UK,” AIB chief economist David McNamara said. “The volume of outstanding work also rose again on the month, but performance varied across sector.”
The pace of expansion was the strongest since March and broadly in line with the long-run series average since 2000, AIB said.
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There was a notable rebound in the technology, media and telecoms sector, while financial services continued to expand sharply. But the lender warned cost pressures remained elevated, linked to wages and fuel, while charge inflation also remained historically strong, despite easing to a five-month low.
The European Central Bank (ECB) is expected to reduce interest rates marginally on Thursday as part of its June rate meeting in Frankfurt but policymakers remain cautious particularly above elevated levels of price growth in the services sector.
AIB’s latest gauge indicated that all four sub-sectors registered higher activity for a fourth month in a row. Technology, media and telecoms (57.4) was the strongest-growing sector followed by financial services (56.6), business services (53) and transport, tourism and leisure (50.6).
New business growth accelerated in May, extending the current growth sequence that began in March 2021, the bank said. There were reports of additional work from existing customers and successful marketing efforts winning new clients.
“Input cost inflation remained at a high rate in May, with the pace of increase accelerating compared to April. Wages and fuel were again cited as the main sources of higher costs by respondents,” McNamara said.
“Firms also continued to raise prices for customers, but the output price index decelerated somewhat on the month to a five-month low.” Still those out prices are well above their historic trend.
Looking ahead, services companies remain confident of higher business activity over the next 12 months. Sentiment in the industry has improved to the best in three months and was “particularly strong” in technology, media and telecoms as well as financial services. Optimism was linked to improving consumer demand, tourism, new services, falling inflation and the prospect of lower interest rates, the bank said.
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