Services sector nears return to growth

IRELAND’S SERVICES sector came close to returning to growth in February for the first time in just over two years, as prices and wages fell to more competitive levels, according to new data published yesterday.

The NCB purchasing managers index rose to 48.8 in February from 44.4 in January, which is still below the 50 mark which separates growth from contraction, but is the highest level since the index last exceeded 50 in January 2008.

The latest survey provides further evidence that deflation is ongoing with input costs falling for the 14th month in a row.

Lower salary payments were the main factor behind a drop in input costs in February, while competition among suppliers enabled service providers to negotiate discounts.

The index also shows that price reductions are being passed on to consumers with output prices falling at the their fastest pace in three months and with anecdotal evidence also suggesting that intense competition is leading to lower prices.

The sub-index measuring prices charged fell to 37.7 from 38.6 in January.

“The survey provided further evidence that deflation is ongoing in the economy with input costs falling for the 14th month in a row,” said Brian Devine, an economist at NCB Stockbrokers.

New orders contracted once again at 47.8 despite being buoyed by an increase in new export orders for the sixth month in a row. However, the pace of reduction eased to a rate that was much weaker than the severe declines seen at the end of 2008 and beginning of 2009.

Meanwhile, 46 per cent of panellists surveyed forecast a rise in business activity over the coming year, mainly due to expectations that economic conditions and client confidence will improve.

Although sentiment dipped slightly in February from January’s 22-month peak and was weaker than the long-run series average, optimism among Irish services companies remained strong overall.

Elsewhere, new figures from Markit show the euro zone’s services sector grew more slowly in February than expected. – (Additional reporting: Reuters)