Services sector shows only modest rate of growth in June

Business activity in the Republic's services sector rose in June, but the rates of growth remain relatively subdued compared to the same period last year, the latest NCB purchasing managers' services index said yesterday.

Similar figures produced by Reuters for Europe as a whole produced some rare good news, indicating that business activity growth rose for the first time in more than a year in June.

However, with Germany slipping deeper into trouble, analysts said the euro zone still faces hard times, adding to the dilemma of the European Central Bank which makes a crucial decision on whether to cut interest rates today.

In a series of Reuters indices charting the state of the services sector, which produces 60 percent of the euro zone's economic output, the headline Business Activity index rose to 52.9 last month from 52.2 in May. That ended a 13-month slide from the record high of 62.2 in April last year. The corresponding NCB business activity index of 535 Irish private services companies recorded 53.7, up from last month's 52.6, to signal growth of overall business activity for the second successive month, after a marginal contraction was recorded in April.

The rate of growth accelerated slightly for the first time in 11 months as a number of companies reported stronger growth of new business. "The service economy has staged some recovery from the dip in the early part of the year," said Mr Eunan King, senior economist at NCB Stockbrokers.

"Financial services are doing well but the remaining sectors are noticeably below the pace of growth seen last year."

The rate of growth of new business was the fastest for four months, with many firms reporting that they had pursued expansionary business policies in June following the widespread disruption caused by the foot-and-mouth crisis.

Despite easing slightly in June, the rate of growth of input prices remained strong as services companies continued to report the inflationary effects of unstable oil prices, the weak euro and strong upward pressure on wages resulting from continued labour shortages.

But staffing levels continued to rise in June and at a slightly faster pace than in the previous month as firms sought to increase capacity in line with rallying demand.

A growth of average service charges was recorded in June, although firms continued to report that their ability to raise charges was curbed by the strong degree of competition in the services economy.

The degree of business confidence recorded by June's survey was largely unchanged from the previous month, although optimism remained well down on that seen through the second half of 2000 and the first quarter of 2001.