|Source: Markit Economics|
Irish Service Economy: Continuing the downward trend recorded since the turn of the year, the seasonally adjusted Business Activity Index registered a new survey low of 39.8 in August. The Index has signalled contraction of activity at service providers in each month since February 2008, and the latest fall was sharp with around 39% of firms noting a reduction.
New business volumes contracted at a substantial rate at Irish service providers in August. New work declined at the sharpest pace in the survey history, amid reports that the credit crunch and weakness in the construction industry continued to negatively affect demand for services.
In August, Irish service firms’ new work from abroad contracted at a moderate pace. The current trend of falling new export business began at the start of 2008 and the latest decline was attributed to the strength of the euro and deteriorating global demand conditions.
A reduction in new business enquiries led to the redirection of resources to existing projects in August. Backlogs of work fell sharply, albeit at a slightly weaker pace than July’s survey record.
Deteriorating economic conditions led many Irish service providers to reduce their staffing levels in August. Employee numbers contracted at a record rate as firms made redundancies and allowed staff to leave without seeking replacements.
Irish service providers continued to face rising input costs as energy and utility bills increased. Although sharp, the rate of inflation slowed markedly from July’s eighty-six month high and was the weakest since February.
Competitive pressures and deteriorating demand conditions combined to lead to a slight fall in output prices at Irish service providers in August. Prices charged fell for the second time in three months, despite upward pressure on output prices from rising input costs.
The degree of confidence amongst service providers improved on July’s survey low, but remained subdued by historical standards. Positive sentiment has been at a lower level on only two other occasions in the survey history. Optimism continued to be adversely affected by fears regarding the health of the Irish economy.
Commenting on the NCB Republic of Ireland Services PMI survey data, Brian Devine, economist at NCB Stockbrokers said: "The slowdown in the services sector continued in August, with the index reaching a series low. New orders contracted at a sharp pace in response to the slowdown in construction and the credit crunch and employment contracted for the 6th month as firms sought to cut costs in the face of weaker activity. Input costs increased at their weakest pace since February."