Services activity falls to lowest level since 2013 on Brexit concerns

Business activity in the Irish services sector fell to its lowest level since May 2013, troubled by a combination of weakening global activity and the growing risk of a no-deal Brexit, a report by AIB indicates.

The bank’s services purchasing managers index (PMI) produced a reading of 53.1 in September, down from 54.6 in August on a seasonally adjusted basis. However, a figure above 50 represents expansion in a sector and AIB said the rate of expansion was still solid.

"The impact of ongoing Brexit uncertainty was quite evident in the survey," said AIB chief economist Oliver Mangan.

“Growth in new orders eased to a six-year low, with firms reporting that Brexit is impacting consumer demand. New export orders actually fell in the month, with respondents seeing a notable downturn in UK orders due to continuing Brexit uncertainty.”

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Downturn

The rate of contraction of new export business was the joint fastest since July 2009 on account of that downturn in UK orders. Similarly, inflows of new business from abroad decreased for the second time in the past three months. Although it was a marginal decline, the rate of contraction was the joint fastest since July 2009.

Additionally, the rate of job creation in the services sector was little changed from August’s more than six-year low while business confidence was the lowest in almost eight years.

“In terms of the four sectors covered in the survey, they all showed solid growth. Companies in financial services reported the fastest rise in activity and those in the transport/tourism/leisure sectors saw a return to growth after two months of contraction,” Mr Mangan added.

On pricing, input costs edged higher in September due to higher fuel, staff and rental costs. Output charge inflation also quickened and was the fastest in four months.

“The September reading of 53.1 still represents a solid pace of growth in the services sector. However, recent PMI data point to a deceleration in the pace of activity in the Irish economy as the year has progressed, largely owing to external headwinds,” Mr Mangan said.