Biggest increase in exports in six years as service sector expands

Activity in Ireland’s services sector grew for a fifth successive month in December on the back of the biggest surge in new export orders since September 2006.

The latest NCB Stockbrokers purchasing managers’ index showed new orders and new export business increased sharply at the end of last year, pointing to continued momentum in the sector. While the NCB headline index of activity fell slightly to 55.8 in December from 56.1 the previous month, it remained comfortably above the 50-point mark which separates contraction from growth.

The index is compiled from a survey of more than 600 companies, ranging from hotels and hairdressers to IT firms and telecoms. The volume of new export business received by Irish service providers rose for the 17th successive month, with December’s figure of 61.3, the highest recorded since September 2006 and the third-highest rate recorded since its inclusion in the index a decade ago.

Middle East and UK

NCB’s sub-index for new business also grew sharply, with survey respondents citing new products and more new business from overseas markets, with the Middle East and UK mentioned as areas of strength.

Also encouraging was the rate of job creation in the sector, which grew for the fourth successive month to remain at a five-year high, with respondents reporting increased workloads on the back of new projects. Commenting on the figures, NCB economist Philip O’Sullivan said strong growth rates in both new business and new export business was encouraging and “pointed to continued momentum in the sector going into the new year”.

However, he said an ongoing mismatch between input costs (which increased for a 25th successive month), and output charges (which have been in negative territory since August 2008) was weighing on profitability in the sector. Ireland’s services sector continues to outperform the wider euro area which remains in a contraction phase.

However, Markit’s Eurozone Composite index, which gauges business activity across thousands of companies in the euro zone, rose from 46.5 in November to 47.2 last month.

While the index has lingered below the 50 mark for 11 successive months, December’s reading was the highest since March last year.

Significantly, Markit’s composite PMI for Germany showed the private sector expanded for the first time in eight months in December on the back of a bounce in services, suggesting the economy may have avoided a contraction in the last quarter of 2012.

In contrast, a survey showed the French services sector shrank at a faster rate than expected on the back of a surprise deterioration in demand.

The Spanish sector also continued to shrink in December but at a slower pace than in previous months. The UK services sector also unexpectedly slipped into contraction mode with the headline PMI index falling to 48.9 in December from 50.2 the previous month.