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News : Irish Economy Last Updated: Dec 5, 2012 - 7:42 AM

Irish Economy: Services activity rises sharply again in November; Caution relating to tax strategies
By Finfacts Team
Dec 5, 2012 - 7:38 AM

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Irish Economy:  Services activity rose sharply again in November with the seasonally adjusted Business Activity Index , based on a single question asking respondents to report on the actual change in business activity at their companies compared to one month ago - -  remained at 56.1 in November, equal with the five-year high seen in October. Respondents indicated that rising new orders had led to the latest sharp expansion in activity. Caution is required here because the tax strategies of the big US services firms in Ireland artifically boost output in Ireland.

There has been a big rise in headline services exports but much of the related economy activity is located elsewhere. For example Google books almost half of its global revenues in Ireland.

Forecasts of improvements in economic conditions led companies to expect activity to rise over the coming year. The launch of new products and increased marketing activities were also predicted to support growth of output.

Another substantial rise in new business was registered in November, with the rate of expansion only slightly weaker than in the previous month. New orders have now increased in five of the past six months. New business from abroad also rose sharply during November, extending the current sequence of growth to 16 months. Some panellists reported higher new orders from the US.

A further strong rise in new business led to an accumulation of backlogs of work. The latest increase was the third in as many months, and the rate at which outstanding business rose was the fastest since March 2007.

Service providers increased their staffing levels at a solid pace in November, and one that was the sharpest in 63 months. Panellists linked the latest rise in employment to higher workloads and the expectation of further improvements in coming months.

The rate of input price inflation slowed for the second successive month in November, and was weaker than the series average. Where input costs did increase, this was linked to higher prices for fuel and rising salary payments.

Output prices decreased again in November, with companies reporting the need to offer discounts in order to support growth of new business. Competitive pressures were also mentioned by respondents. The rate of decline in prices charged was solid, and only slightly weaker than in October.

Philip O’Sullivan, chief economist at NCB Stockbrokers said: "The latest NCB Services PMI release, covering the month of November, provides much to be cheerful about. The headline Business Activity (56.1) index is unchanged from the five-year high recorded in the previous month. Companies in the services  sector are upbeat about their prospects, with the 'Expected Levels in 12 Months' Time' reading at its highest level in eight months.

"New Business has been in positive territory for four months now. This has been partly driven by New Export Business, continuing an unbroken expansionary trend that stretches back to August 2011, and also by new client wins domestically. This improved demand has helped bolster Employment (which recorded a third successive monthly increase and the sharpest rate of expansion in 63 months) within the sector.

"The Services PMI surveys four sectors - Business Services, Financial Services, TMT and Transport & Leisure. All of these reported growth in business activity during the month, save for Transport & Leisure. This is something of a surprise given the robust growth recorded in that segment in October, however, given that the 'Expected Levels in 12 Months' Time' reading for Transport & Leisure was little changed relative to the previous month this may be just a blip as opposed to the start of a new trend.

"For some time now we have noted the divergence between Input Costs (rising) and Output Prices (falling) for the sector. This suggests that discounting is continuing to play a role in supporting growth for Services firms, leading to some companies sacrificing margins in order to drive top-line growth.

"We described the results of last month's NCB Services PMI release as "an impressive performance given the broader economic backdrop". With the overall picture little changed since then, we would echo that description for today's release."

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

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