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News : Irish Economy Last Updated: Jun 5, 2015 - 7:46 AM

Irish service sector PMI remains strong; Tax avoidance clouds data
By Michael Hennigan, Finfacts founder and editor
Jun 4, 2015 - 9:17 AM

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The Irish service sector PMI (purchasing managers' index) survey data saw an improvement in growth momentum in May, with activity and new business rising at faster rates and companies taking on extra staff at the strongest pace so far this year. On the price front, higher staff costs and a weak euro led to rising input prices while a solid increase in charges was recorded. However, as the biggest companies in the sector such as Google divert revenues from its main markets to Ireland for tax purposes, the real level of activity while positive is more muted.

The CSO's monthly services index rose 1.3% in March after a dip of 4.5% in February and is up 8.3% in 12 months.

The services index fell 0.6% in April according to the CSO today.

Markit says 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 — rose to 61.4 in May from 60.6 in April. "The reading pointed to the sharpest expansion in three months, with service providers reporting that improving economic conditions had helped them to secure greater levels of new business."

Panellists generally expect market conditions to improve further over the next 12 months, resulting in strong optimism regarding the prospects for additional growth of activity. Sentiment was fractionally higher than in April.

Irish service providers posted a substantial increase in new orders during May, with the rate of expansion picking up to the sharpest in three months. As with activity, general improvements in economic conditions were mentioned as the key driver of new business growth. New export orders also increased at a faster pace, with the UK and US reportedly the key sources of new business from abroad.

With new business rising sharply again, companies continued to see an increase in their outstanding work. Backlogs have now accumulated throughout the past two years, with the latest increase the fastest since last October.

Alongside increasing new business, work on new projects and predictions of further new order growth led companies to take on extra staff again in May.

"Moreover, the rate of job creation picked up to the strongest in 2015 so far."

Input price inflation picked up during the month amid reports of higher wage costs and the weakness of the euro against sterling and the US dollar. Output prices also increased in May, extending the current sequence of inflation to 14 months. That said, the latest rise was the weakest in three months. Higher input costs had reportedly been the main factor leading firms to raise their charges, while competitive pressures and promotional discounts resulted in lower output prices elsewhere.

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