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News : Irish Economy Last Updated: Jul 4, 2014 - 3:35 PM

Irish Economy 2014: Services surge but Reality Check required
By Michael Hennigan, Finfacts founder and editor
Jul 3, 2014 - 7:30 AM

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Irish Economy 2014: Growth in the Irish service sector picked up momentum at the end of the second quarter, with sharper rises in activity and new business recorded. This led companies to take on extra staff at a faster pace. Meanwhile, inflationary pressures showed signs of building, with quicker increases in both input costs and output prices.  However, there is a Reality Check required as Philip O'Sullivan, chief economist at Investec Ireland, suggests that today's data on services exports will validate the PMI (purchasing managers' index) survey.

This is fairytale economics as the biggest "exporters" are not real exporters - - Google, Microsoft and Facebook book big chunks of their global revenues in Ireland (40%+, 25% and 50%)  and the revenues are rising at double-digit rates.

These are fake tax avoidance related exports that reflect activities in many countries.

Finfacts: Irish Economy: Ireland's ephemeral services export boom

The CSO's monthly services index has a panel of 2,100 firms and it reported in June that the index increased by 2.2% in April 2014 when compared with March 2014 and there was an annual increase of 4.1%.

On the PMI report, Markit says today that 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 - -  registered at 62.6 in June to signal a further strong expansion in activity. Rising from 61.7 in the previous month, the index signalled a quicker rate of growth. Panellists reported that improving economic conditions had led new work to increase, thereby supporting the expansion in activity. Growth of activity has been recorded in each month since August 2012.

Service providers remained confident that activity will continue to rise over the coming year, with sentiment largely unchanged from that seen in May. Expectations of strengthening economic conditions and the launch of new products were mentioned by panellists.

Higher new orders from both domestic and export clients led total new business to increase in June, extending the current sequence of expansion to 23 months. The rate of growth in new export orders quickened in June as companies were reportedly able to secure new foreign business from both new and existing clients.

Outstanding business increased at a solid pace as companies struggled to keep up with the pace at which new business was received.

Strong growth of new work led companies to raise their staffing levels again in June, with the rate of job creation quickening from that seen in May. Employment has now increased in each of the past 22 months.

The rate of input cost inflation quickened for the third consecutive month during June and was the fastest since March 2011. According to respondents, higher staff costs was the main factor leading input prices to rise, but the recent strength of sterling against the euro was also mentioned.

Some companies were able to pass on higher cost burdens to their clients in June, thereby leading to a third successive monthly rise in output prices. Moreover, the rate of inflation was solid and the sharpest since April 2007.

Philip O‟Sullivan, chief economist at Investec Ireland said:  "Thursday's Q1 National Accounts release from Ireland‟s Central Statistics Office will provide the first 'hard data' on the performance of services exports since the start of the year. Ahead of this release, the improvement in the Export index of the Services PMI over the same period bodes well in that regard.

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