Service sector growth slowed to a six-month low last month, driven by several factors including “rising cost pressures,” according to a report by AIB.
The greater costs were linked to wages, pensions, energy and fuel prices.
The service sector covers everything from hotels and hairdressers to IT firms and telecoms.
AIB’s latest purchasing managers index (PMI) for services was recorded at 51.8 in February, down from 54.5 in January, signalling an easing in the pace of expansion. Any figure above 50 indicates expansion.
READ MORE
AIB said the latest figure signalled the softest rate of expansion in total activity in six months, “and one that was below the long-run survey average for the third successive month”.
February’s expansion nevertheless extended the current sequence of growth to five years, it said.
Of the four subsectors covered by the report, financial services registered the strongest rate of the expansion (55.4) followed by business services (51.2) and transport, tourism and leisure (50.2).
The technology, media and telecoms (49.9) registered a modest contraction.
Could Trump’s new global tariff scupper the US-EU trade deal?
The rate of expansion in new business moderated for the third month running in February, while new export business rose only modestly during February.
Pressure on service providers’ costs remained strong in February, said AIB.
“Average input prices increased at a slightly softer rate than in January, but one that remained above the long-run survey average,” it said, noting panellists linked the greater costs to wages, pensions, energy, fuel, transport and materials.
“Although input price inflation held close to January’s level, the rate at which service providers increased their own prices slowed notably from January’s 20-month high as companies limited increases to remain competitive as new business growth slowed,” it said.
Service businesses continued to raise their staffing levels in February. Employment in the sector has risen continuously for almost five years, except for brief dips last January and August.
Financial services recorded the sharpest increase in staffing last month.
“New business rose at its slowest pace since August, with new export business expanding at a steady pace,” said AIB chief economist David McNamara.
“However, the volume of outstanding work bounced back to growth in February following a contraction in January, signalling robust activity across the sector,” he said.
“In terms of the outlook, business sentiment saw an uptick, with firms broadly optimistic for their prospects in the coming 12 months, linked to new projects and business opportunities,” McNamara added.
Separately, the European Central Bank (ECB) should “sit tight” and keep interest rates steady for now as the impact of the war in Iran remains uncertain, said ECB policymaker Martins Kazaks on Tuesday.
Kazaks, the Latvian central bank governor, said the conflict may boost inflation but also depress activity, meaning the euro zone’s central bank should wait for the fog of war to clear before acting.
– Additional reporting: Reuters
