“Service Sector Expansion Amid High Costs”

In May, the service sector in Ireland saw an uptick in activity, however, higher costs related to pay and fuel continue to be a concern, stated AIB. The latest PMI for services by the bank climbed from 53.3 in April to 55 in May, indicating a brisker enhancement in Irish service sector operations. The sector is regarded as expanding if the reading surpasses 50. The recent increase was ascribed to the growth of new enterprises.

David McNamara, AIB’s chief economist, said, “In general, Irish companies have been reporting higher amounts of new businesses, predominantly due to strong domestic and international demand, specifically from Europe and the UK. Additionally, the amount of work outstanding also had an increase this month but the performance varied across sectors.”

Since March, the advancement rate was the most robust and generally aligns with the average of the long-run series set since 2000, according to AIB. The technology, media, and telecoms sector made a significant recovery, whilst the financial services continued their brisk expansion. However, AIB cautioned that wage and fuel-related price pressures remained high and charge inflation was historically robust, despite slightly receding to a low of five months.

The ECB is predicted to slightly decrease interest rates on Thursday at its June rate meeting in Frankfurt. Yet, particularly about the heightened price growth in the service sector, policymakers express caution. All four sub-sectors have experienced a rise in activity for four straight months, according to AIB’s recent measure. The technology, media and telecoms sector being the fastest growing followed by financial services, business services and finally, transport, tourism and leisure.

AIB stated that new business growth quickened in May, extending the growth sequence that originated in March 2021. Additional work was reported from existing clients and successful marketing tactics lured in new clients.

McNamara said, “May saw a continuation of high input cost inflation, with the rate of increase accelerating compared to April. Wage and fuel were pointed to as the main factors for these higher costs. Prices for clients continued to increase, however, the output price index somewhat slowed for the month to a five-month low.” Despite this, the out prices remain well above their historic trend.

Moving forward, firms within the services sector retain their positive outlook for increased business operations in the forthcoming year. The mood within the industry has escalated to a high unseen in the past quarter, with particularly notable strength witnessed in the tech, media, telecom fields and also within the financial services. This buoyancy has been credited to enhanced consumer demand, rising tourism, the introduction of new services, declining inflation and the potential for interest rates to drop, according to the financial institution’s statement.

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