Momentum slows in key sector of economy

The economy is showing signs of stagnation as growth and new business in the key services sector slowed to a crawl last month.

The AIB Irish Services PMI for November showed a significant loss of momentum as the activity index fell to 50.8 from 53.2 in October.

Readings above 50 mean expansion.

The tiny monthly increase reflected flat demand for services, with new business growing the slowest in the current 21-month streak of post-Covid growth.

AIB said companies are reporting caution from their customers due to rising economic uncertainty and persistently high inflation.

The service sector accounts for the bulk of Ireland’s economy and the lack of momentum is a negative sign for future growth. Services PMIs have already slipped below 50 in the US, Eurozone and UK, pointing to a likely global downturn in 2023.

“Almost all major components of the Irish survey showed clear signs of a weakening trend in November,” said AIB Chief Economist Oliver Mangan.

“Companies remained under strong upward pressure on input costs, particularly electricity prices, fuel, wages and materials, with inflation accelerating in November. Higher costs continued to be passed on to customers in the form of higher prices, who in turn saw significant increases in all four industries surveyed.”

The index was primarily weighed down by the poor performance of the transportation, tourism and leisure sectors, which recorded their third straight monthly decline in activity and the fastest decline since February 2021.

The other three sectors in the survey — financial services, business services, and media, technology and telecoms — all saw growth, albeit a slowdown, with technology leading the way.

The soft services data follows last week’s manufacturing survey, which fell for the first time since the initial Covid lockdown in May 2020 as employment fell for the sector.

If the services PMI follows the same trend of steadily declining readings, it will turn negative either next month or in January.

Signs of a slowdown in the domestic economy were also seen in third-quarter growth numbers released last Friday, which showed a 1 percent drop in modified domestic demand, although GDP still grew 2.3 percent.

“While GDP continues to grow strongly, this does not reflect what is happening on the ground in the domestic economy given the outsized role played by the multinational sector in our economy,” Finance Minister Paschal Donohoe said.

“However, this modest decline in activity largely reflects a return to the investment trend after reaching exceptionally high levels in the second quarter.”

Goodbody economists said that despite higher prices at the end of the year, the consumer is likely to experience a seasonal upswing but the domestic economy will continue to be under pressure in 2023.

Two bright spots in the services survey were employment and capacity. The sector continued to add jobs while the slowdown in new business allowed capacity constraints to ease.

https://www.independent.ie/business/irish/momentum-slows-in-key-sector-of-the-economy-42194723.html Momentum slows in key sector of economy

Fry Electronics Team

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