The services industry of the Republic of Ireland saw a rise in activity in February; however, it was also accompanied by mounting price pressures, as highlighted by AIB. There was an increase in the bank’s most recent services purchasing managers index, which at 54.4 for the month indicated the quickest growth rate in half a year. Any figure over 50 signifies that expansion is taking place.
However, concerns were raised due to a disturbing rise in input prices and costs, reaching their peak in 10 and 12 months respectively. Salary costs were once again the primary inflationary factor, while transportation companies also pointed out increasing fuel expenses. Across the four primary sectors, transport, tourism and leisure sectors recorded the highest input price inflation but the lowest charge inflation. The most rapid increase in costs was reported in the financial services sector.
There has been ongoing concern amongst policymakers at the European Central Bank about inflation within the services sector, with hopes of seeing it decrease prior to any reductions in interest rates. A positive note from the AIB’s recent measure indicates that overall services sector activity and new enterprises experienced six-month high growth rates, leading to the most significant increase in job creation in the past eight months.
Despite the strong rebound from the 2022 pandemic, the services sector, comprising various businesses from hotels and barber shops to IT and telecom companies, experienced a squeeze on the cost of living and higher interest rates last year. This resulted in weaker demand and lower service spending. Despite this, the latest AIB measure is still below the long-term trend.
Still, corporations reported an increase in demand from Europe, with new export businesses experiencing the highest growth rate in six months. The services sector has also expanded for the 36th consecutive month since March 2021. February saw all four monitored sub-sectors registering increased activity. For the third consecutive month, the financial services sector (57.6) led the growth, followed by transport, tourism, leisure (53.7), and technology, media, telecoms (53.7). AIB reported a modest growth in business services (51.3), which was still a significant improvement from January’s almost three-year low.
In conclusion, Irish companies continued to experience an upswing in new business across all sectors, a trend partly attributed to strong international demand, according to AIB’s chief economist, David McNamara.
The amount of work pending saw an increase this month, succeeding a lull in January’s activities. Every one of the four sectors we looked at in our research experienced overall growth, with financial services showcasing particularly vigorous expansion. Companies also expressed positivity concerning projected activities in the upcoming 12 months, seeing encouragement from a hopeful economic revival, reducing lending rates, and fresh product introductions.
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