Services sector still weak but optimism rises for the future

Data signals a much softer overall reduction in activity than in the first Covid lockdown

The services business activity index registered 41.2 in February, with any reading under 50 indicating a contraction

The services business activity index registered 41.2 in February, with any reading under 50 indicating a contraction

 

Activity in Ireland’s services sector remained in the doldrums in February as lockdown restrictions remained in place.

The latest Purchasing Managers’ Index (PMI) survey data shows business activity and new work both continued to fall sharply, albeit not as dramatically as in January. On a more positive note, the 12-month outlook improved as companies said they expect an uplift once restrictions are removed and as more people receive Covid vaccinations.

The services business activity index registered 41.2 in February, with any reading under 50 indicating a contraction. The index rose from 36.2 in January, however, pointing to a slower decline.

Data for the first quarter so far are signalling a much softer overall reduction in activity than that seen in the second quarter of 2020 during the first coronavirus lockdown, although it is still the second-worst outcome from the survey since the second quarter of 2009.

Data signalled the strongest upward pressure on firms’ input costs in three months. However, input price inflation remained below the long-run survey average, especially for business and financial service providers.

Although input costs rose for the eighth successive month, prices charged continued to fall, reflecting efforts by businesses to remain competitive during the current lockdown restrictions.

“The impact of the continuing lockdown was very evident in a further decline in new business in the month, as tight restrictions suppressed demand... this reduction in new business resulted in a further marked decline in the volume of outstanding work, and saw another round of job cutting in the sector,” said chief economist Oliver Mangan.

“The sub-sector data show that the transport, tourism and leisure sector remains the hardest hitby the lockdown. However, there were also marked contractions in business activity in technology/media/ telecoms as well as business services, while financial services remained static,” he added.