AIB says most severe phase of hit to service businesses has passed

The most severe phase of the hit to service businesses from Covid-19 has passed, according to data from AIB, which shows a sector that is beginning to stabilise after the chaos resulting from the pandemic.

The bank’s purchasing managers index (PMI) for June shows that although the sector was still contracting, that contraction was at the slowest rate since the downturn began in March.

The index rose to 39.7 in June from 23.4 in May and from April’s record low of 13.9. Although anything below 50 indicates a sector in contraction, the upward move indicates that business is returning to some normality, albeit at a slow rate.

"With large parts of the economy still in lockdown as a result of the measures taken to contain the spread of coronavirus, the AIB Irish services PMI staged only a partial recovery in June," said the bank's chief economist, Oliver Mangan.

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However, the State’s reading is below that for the euro zone, the UK and the US. Mr Mangan said this reflected “the much more cautious approach of the Irish authorities to lifting lockdown restrictions compared to elsewhere”.

The PMI survey monitors four sub-sectors and found that three of them continued to record declining business activity in June.

The transport, tourism and leisure sector registered the steepest rate of contraction, followed by financial services and business services respectively. Activity in the technology, media and telecoms sector rose for the first time since February, albeit marginally.

Positivity

Despite some elements of positivity, service providers continued to shed staff in the month of June. Some 25 per cent of respondents reported lower workforces in June compared with 37 per cent in May and 41 per cent in April.

Nevertheless, companies were confident of growth over the coming 12 months. Nearly half of companies expected growth by this time next year, while 24 per cent expected a further decline in business.

Mr Mangan said this change was encouraging, and noted that the bank expected “stronger PMI data from July onwards as the economy reopens following the lifting of most lockdown restrictions”.

The PMI is compiled by IHS Market from responses to questionnaires sent to a panel of about 400 service sector companies. Survey responses are collected in the second half of each month.