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Services sector growth is slowing as costs rise and the outlook darkens

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The pace of Irish service sector expansion slowed in June and business confidence fell as higher costs and the war in Ukraine weighed on businesses.

Fuel, energy, wages and freight rose in June, with 63 percent of companies in AIB’s latest Purchasing Managers’ Index (PMI) reporting higher costs.

Services activity fell to 55.6 in June from 60.2 in May, the weakest rise since December. Any value above 50 indicates growth.

New business grew at its slowest since January, with some companies saying high inflation is dampening demand.

According to the EU’s harmonized index, Irish consumer prices rose by 9.6 percent in June, well above the euro zone average.

As a result, managers are now less optimistic about their growth prospects over the next 12 months. It’s the most pessimistic since October 2020, when Ireland went back into full lockdown.

While the service sector grew, manufacturing fell for the first time in 16 months, the AIB index showed.

The combined services and manufacturing index – known as the Ireland Composite Output Index – stood at 52.8 in June, compared with 57.5 in May.

It’s the slowest rate of expansion in a 16-month growth streak, and it’s slowed for the third month in a row. The index is now below its long-term average.

While manufacturing cost inflation eased slightly in June, it is still the fourth-highest on record.

Transport, tourism and leisure companies saw the highest cost increases of any sector.

However, businesses are passing these costs on to consumers, with transport and tourism posting the highest price increases of any service sector in June.

However, growth in the transport and tourism sectors is slowing after posting the strongest expansions of any service sector in March, April and May.

Transportation and tourism companies were still hiring in June, albeit at a slower pace than the business, financial and technology services sectors.

Overall, Irish services firms posted positive employment growth for the 16th month in a row, although momentum is beginning to fade.

Business services recorded the highest number of new hires, although this sector was the slowest-growing sector overall for the third straight month in June.

Financial services took the lead as the fastest growing industry for the first time since February.

OIiver Mangan, AIB’s chief economist, said the figures showed a “significant slowdown in the pace of growth” in the services sector in June.

However, he said the index remains above its long-term average and “well ahead” of surveys in the euro zone, the UK and the US.

“The war in Ukraine and elevated inflationary pressures continue to weigh on the outlook for economic activity,” Mr Mangan said.

“Companies remained under strong upward pressure on input prices, particularly fuel, energy, freight and labor costs.

“This, in turn, caused the prices charged to customers to increase very sharply for the fourth straight month.”

The data comes as bankruptcy experts predict a spike in corporate bankruptcies in the second half of the year and into 2023.

According to consultancy Deloitte, the number of firms going bankrupt has already increased by 50 percent in the last six months compared to the same period in 2021.

https://www.independent.ie/business/irish/growth-in-services-sector-slowing-as-costs-rise-and-outlook-darkens-41813495.html Services sector growth is slowing as costs rise and the outlook darkens

Fry Electronics Team

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