Services activity slows to ‘crawl’ amid recession fears

Latest purchasing managers index for services sector signals weakening demand as energy crisis and spiralling living costs dent confidence

Growth in the domestically-dominant services sector in Ireland slowed to a “crawl” in November as demand weakened in the face of higher prices, according to the latest AIB purchasing managers index (PMI) survey.

Business expectations in the sector, which includes everything from hotels and hairdressers to IT firms and telecoms, also slumped as recession fears, the energy crisis and rising living costs weighed on confidence, the bank said.

Still, AIB’s headline index continued to show growth with total activity, new work and outstanding business rising but at a slower pace.

“Nearly all of the main components of the Irish survey showed clear signs of a weakening trend in November. Growth in new business slumped from 55.7 to 50.6, with both business services and transport/tourism/leisure posting outright contractions in new work,” AIB chief economist Oliver Mangan said.


The index registered growth for the 21st successive month in November, but moved lower for the seventh time in eight months “to signal only a fractional rate of expansion,” AIB said.

Economic contraction

The latest figure of 50.8, down from 53.2 in October, was the lowest over the current sequence and below the 22-year-long-run trend level of 55.1 for the fourth straight month, it said. Anything above 50 denotes an expansion in activity. The measure is closely watched as it is a leading indicator of the health of the services sector which is critical for the Irish economy overall. The latest numbers come days after it emerged that the domestic economy contracted in the third quarter.

AIB said the index was again weighed down by “a very weak performance” by the transport/tourism/leisure sector, which registered a reading of just 40.2 for business activity.

Three out of four subsectors did, however, record an increase in activity with technology, media and telecoms (55.9) overtaking financial services (52.6) as the fastest-growing category.

The sub index covering input-price inflation continued to rise sharply in November, linked to electricity prices, materials, wages, fuel and insurance among other costs.

AIB said the rate of inflation accelerated slightly, but remained below the trend for 2022 so far. The rate of charge inflation eased to a three-month low but remained among the highest on record.

The survey also indicated that the rate of growth in new export business also slowed sharply. This saw a marked easing of capacity pressures, with backlogs of outstanding business rising at the slowest pace in 21 months.

Jobs increase

On the upside, the service sector workforce continued to expand in November but again the rate of job creation eased to the weakest in 2022 so far.

“The one ray of light was another impressive rise in employment. However, firms’ outlook for the next 12 months fell back again, as recession fears, the energy crisis and rising inflation all weighed on confidence,” he said.

“Businesses continued to experience strong upward pressure on input costs, most notably electricity prices, fuel, wages and materials, with the rate of inflation accelerating in November,” Mr Mangan said.

“Higher costs continued to be passed on to customers in the form of higher prices, which again registered marked increases in all four sectors covered in the survey,” he said.

AIB’s report comes in the wake of figures last week, which indicated the Republic’s domestic economy contracted in the third quarter as consumers reined in discretionary spending.

The latest quarterly national accounts from the Central Statistics Office (CSO) show economic activity – as measured by modified domestic demand (MDD), a more precise indicator of domestic conditions than gross domestic product (GDP) as it strips out the distorting effects of the multinational sector – fell by 1.1 per cent between July and September after growing by 4.7 per cent in the second quarter.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times