Services sector outlook plunges in March in wake of invasion of Ukraine

Sentiment in the Irish services sector plunged in March, despite evidence of growing momentum in its recovery, while inflationary pressures surged to record highs, according to the latest AIB purchasing managers' index (PMI).

The PMI signalled the strongest growth in the services sector for five months, with the rebound led by a resurgence in demand in the transport, tourism and leisure sector as consumers embraced the lifting of Covid-19 restrictions.

But overall expectations for the next 12 months were the weakest since January 2021, as the war in Ukraine and risks posed by inflation combined to knock business confidence across the services sector in March.

Sentiment drop

The overall services future activity index posted the third-largest month-on-month decline in the series’s history, with the extent of the drop in sentiment exceeded only twice in the survey’s history: in March 2020, at the outset of the pandemic; and in September 2001, in the wake of terrorist attacks in the US.

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There was further strong growth in new business in March, including exports, while employment rose at its quickest pace since August.

The volume of outstanding business soared at its fastest rate in more than two decades.

Capacity pressure

"The rebound in demand is putting growing pressure on operating capacity, with the volume of outstanding business rising at its fastest pace since 2000. This was also linked to Covid-related staff absences and supply difficulties," said AIB chief economist Oliver Mangan.

“Meanwhile, businesses continued to experience severe upward pressure on input prices, in particular from higher labour, energy, fuel, insurance and transport costs. Indeed, the rate of input price inflation was the fastest in the 21-year history of the survey.”

The prices charged to customers also rose at an unprecedented rate, with the rate of inflation charged easily surpassing the previous record. Transport, tourism and leisure prices climbed by the steepest amount.