Activity in services sector rises for the first time in five months

Business activity in the Republic's services sector rose in December for the first time in five months, according to the latest NCB purchasing managers' services index (PMI).

December's business activity index recorded 52.2, up from 47 in November, signalling expansion of overall activity levels in the services economy for the first time since July 2001.

In broad terms, a reading above 50 on the index translates growth, while readings below 50 indicate contraction.

"The sharp jump in the services PMI in December, with activity once again in expansion mode, is very encouraging after the uncertainties of recent months," said Mr Dermot O'Brien, chief economist at NCB Stockbrokers

"Coming on the heels of the manufacturing PMI, which also showed a noticeable improvement in December, the results suggest that recent gloom about Irish economic prospects is overdone."

Signs of a recovery in Irish and European manufacturing emerged earlier in the week with the publication of production data for December. The amount of goods being produced by Irish businesses continues to decline, but the decline is continuing to slow, according to the NCB purchasing managers' manufacturing index. The figure was 47.7, up on October's low of 46.1.

Ireland's services sector is performing better than its European counterparts, according to the latest figures.

The euro zone's dominant services sector shrank in December for the fourth month running but businesses are becoming more optimistic, according to the Reuters Eurozone Business Activity Index.

The index rose to 49.2 in December from 46.9 in November, nearing the 50 threshold between growth and contraction, after hitting a series low of 46.7 in October following the attacks on the US.

The Irish survey, compiled from information provided by 604 Irish private services companies, said firms generally reported raising activity at their operations in response to the recent revival of new business following the period of uncertainty which prevailed in the wake of the terrorist attacks in the US on September 11th.

Growth of new business was also reported in December for the first time in five months.

Demand for a number of services, such as travel and leisure based services, was positively affected by the unseasonably warm weather during December, and the return of stability to markets following the events of September 11th helped boost demand throughout the services economy, NCB said.

Activity in the business services sector contracted in December - the fifth time in the past six months - but the financial services sector saw robust growth of overall activity last month, as firms reported renewed confidence in financial markets. A number of firms also reported increased workloads prior to the launch of the euro.

Technology, media and telecoms sector firms reported a marked rise in activity levels during December. Expansion of total activity resulted from a further boost to new business during the month, as well as the sustained strong degree of optimism within the sector.