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News : Irish Economy Last Updated: Jun 6, 2014 - 10:08 AM


Irish services PMI eases from "white-hot" growth rate; Official data show dip in 12-months to March
By Michael Hennigan, Finfacts founder and editor
Jun 5, 2014 - 6:07 AM

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The Irish services PMI (purchasing managers' index) in May shows an easing in the "white-hot rate of growth recorded in the sector during April" but the Irish services sector is dominated by US firms such as Google and Microsoft which book large chunks of their global revenues in Ireland for tax purposes.

The CSO's monthly index with a sample of firms more than five times Markit's, showed a fall in services activity in the 12 months to March and flat performance in the month of March after a dip in February -- the April services index report will be published today by the CSO but it gets very little media attention.

"All in all, while most components in today's report point to a moderation in the rate of expansion, we would not be particularly concerned given that the white-hot rate of growth recorded in the sector during April (the fastest since February 2007) was unlikely to be maintained for long," said Philip O'Sullivan, Investec chief economist. "We draw comfort from the forward-looking 'Expected Levels of Business Activity in 12 Months. Time' component, which has been stable at a robust rate of growth for the past three months. So, taken together with the decent Manufacturing PMI report earlier this week, today‟s release bodes well for the performance of the wider Irish economy during Q2 and beyond."

The seasonally adjusted 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 - - posted 61.7 in May, down slightly from 61.9 in April but still signalling a sharp expansion in service sector activity. Panellists mainly linked higher activity to increased new orders. Service sector output has now risen in each of the past 22 months.

Sentiment regarding future activity also remained strong in May, with panellists forecasting improving economic conditions in Ireland and higher new work from abroad over the coming year.

Increased market activity led to another substantial monthly rise in new business, with new work up for the twenty-second consecutive month and at a pace well in advance of the series average. New export orders also continued to increase, although the rate of expansion slowed to the weakest since last September. Panellists indicated that the UK had been the key source of rising new export orders during the month.

Irish service providers recorded a twelfth successive monthly increase in outstanding business during May, largely due to rising new orders. That said, the pace of accumulation eased from that seen in April.  Higher new business also led to another rise in employment at Irish services companies, the twenty-first in as many months. Although easing to the slowest since November last year, the rate of job creation remained sharp.

The rate of input cost inflation accelerated for the second consecutive month, with panellists mainly attributing increased input prices to higher salary payments.

Higher input prices encouraged service providers to increase their output charges during the month, and a second successive month of inflation was recorded as a result. However, the rate of inflation remained only marginal amid pressure from customers for lower prices.

The panel includes around 450 private companies from the sector and no response rate is published.

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