Source: Markit Economics

Irish service activity continued to fall in February while intense competition led to further reduction in charges. The seasonally adjusted NCB Business Activity Index - - which is based on a single question asking respondents to report on the actual change in business activity at their companies compared to one month ago - - rose to 48.8 in February, from 44.4 in the previous month.

While business activity continued to fall, the rate of contraction eased to its weakest in the current twenty-five month period of decline. The survey of service firms showed that the ongoing fragility in the Irish economy was the main factor behind the reduction in activity as new orders fell further during the month. Irish service providers expect business activity to be higher in twelve months’ time, with panellists predicting an improvement in economic conditions and a subsequent increase in confidence among clients. While sentiment remained elevated it was still weaker than the long-run series average.

Clients remained reluctant to commit to new projects in February. Consequently, new orders at Irish services companies fell further during the month, albeit at a weaker pace than in the previous month. The fall in total new business was recorded despite another increase in new export orders, which were boosted by strengthening demand from the UK. New business from abroad has risen in each month since last September.

Outstanding business decreased for the thirtieth successive month in February. Falling backlogs reflected the completion of existing projects, with insufficient new business to compensate. As has been the case throughout the past two years, employment fell at Irish services companies in February. Furthermore, the rate of job cuts accelerated during the month as firms adjusted their workforces in line with falling new business.

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 pace of decline remained sharp, despite easing to the weakest in the current fourteen-month sequence of reduction. Output prices fell at the fastest pace in three months during February. Anecdotal evidence suggested that intense competition was the principal cause of the latest reduction. There were also some reports that lower input costs had been passed on to clients.

Commenting on the NCB Republic of Ireland Services PMI (Purchasing Managers' Index) survey data, Brian Devine, economist at NCB Stockbrokers said: “The services PMI rebounded vigorously in February after a disappointing reading in January but still remains below the 50 mark, signalling ongoing contraction. The survey provided further evidence that deflation is ongoing in the economy with input costs falling for the fourteenth 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. It was also evident that price reductions are being passed on to consumers with output prices falling at the fastest pace in three months and anecdotal evidence also suggesting that intense competition was leading to lower prices.”

The NCB Republic of Ireland Services PMI (Purchasing Managers’ Index) is produced by Markit Economics. The report features original survey data collected from a representative panel of around 300 companies based in the Republic of Ireland services sector.