Services sector expands but loses momentum in October

Service sector activity growth in Ireland continued to lose momentum in October but there were some “quite encouraging” signs compared to other economies, the latest AIB purchasing managers index (PMI) survey suggests.

Demand growth remained strong, but below the trend shown since the second quarter of 2021. This was accompanied by a relative easing in inflationary pressures, although input prices and charges both continued to rise sharply overall.

Service providers continued to expand their workforces at a solid pace as expectations picked up since September. While the overall index reading of 53.2 was down from the 54.1 seen in September, it remained above the 50 level, signalling an overall expansion rather than a contraction.

“The AIB Irish Services PMI for October showed a further loss of momentum in growth in the sector,” said AIB chief economist Oliver Mangan.

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“As in September, though, the headline business activity index was again weighed down by a weak performance by the transport/tourism/leisure sector. The continued solid expansion in business activity in Ireland is in marked contrast to the trend elsewhere. The flash services PMI readings were all in contraction territory in the US, UK and euro zone in October,” he noted.

The main components of the Irish survey “were also quite encouraging”, Mr Mangan added.

“Growth in new business remained strong, with a notable marked rebound in new export business. There was another significant increase in backlogs of outstanding business, which firms linked to staff shortages as well as the good growth in new business. There was also a further strong rise in employment, with the rate of growth reaching a three-month high.”

Mr Mangan said it was encouraging to see strong readings for new business, outstanding business and employment evident across all four sub-sectors covered in the survey.

“Meanwhile, firms’ outlook for the next 12 months picked up from September’s two-year low to its highest level since July. Businesses across all four sub-sectors continued to experience strong upward pressure on input costs, especially energy prices and wages. These continued to be passed on to customers in the form of higher prices.

“However, the rate of increase in both input prices and prices charged, while still elevated, did ease in October and are off their peak levels seen earlier in the year.”