Business activity in Dublin stalls as inflation hits consumer spending

Business activity in Dublin stalled in the final quarter of last year, ending six quarters of expansion, as inflationary pressures weighed on consumer spending.

The latest purchasing managers’ index (PMI) from ratings agency S&P Global also pointed to a fall in new business orders, suggesting demand “will remain constrained” in the coming quarters.

The survey of business activity in the capital is calculated using responses from about 200 businesses across the services, manufacturing and construction sectors.

The main index for the fourth quarter of 2022 fell to 49.9, from 50.4 previously, indicating a contraction in overall activity. A reading below 50 indicates shrinkage.

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On a sectoral basis, both manufacturing (47.2) and construction (45.1) posted reductions in output in the fourth quarter while the “robust” services sector (52.7) continued to record a solid increase in activity, S&P said. Output across the rest of the State remained narrowly within expansionary territory (50.5), the agency said.

The subindex for new orders, which signals the potential for economic hardship in 2023, fell to 48.1 per cent, which outside the pandemic era was the first decrease since 2012.

[ Food and drink exports hit record despite inflationary challenge ]

The rest of the Republic also recorded a decrease in new orders, but at 49.2, it was softer than seen in the capital, S&P said.

“These new order trends are concerning as the effects of interest rate hikes will likely only begin to be felt in the quarters to come,” the agency said.

The subindex for employment remained “resilient” as Dublin firms increased their staffing levels for the eighth consecutive quarter. At 52.3 the rate of job creation was described as “solid” while slowing to its weakest level since the first quarter of 2021. Employment outside the capital also increased but at a slower pace.

“Dublin firms are feeling the pinch at present as waning demand acts to limit business activity both in the capital and across the rest of Ireland as well,” Andrew Harker, economics director at S&P Global Market Intelligence said.

“Growth in the service sector was cancelled out by falling activity across manufacturing and construction in the final quarter of 2022,” he said.

“On a more positive note, however, firms are still taking on extra staff, perhaps hoping that any soft-patch will prove to be short-lived,” Mr Harker added.