Services sector contracts for 14th month

IRELAND’S SERVICES sector contracted for a 14th consecutive month in March but there was an increase in the number of businesses taking a more positive view of the future.

The NCB Purchasing Managers’ Index – which measures activity in the services sector which ranges from accountancy firms to haulage companies – showed a reading of 35.7, which was an improvement on the reading of 31.8 in February.

The 50 mark separates growth from contraction. The most severe contractions were in the leisure and transport sectors.

The report showed some improvement in business expectations which rose to a reading of 50.8, following five consecutive months of pessimism.

Just over a third of respondents said they expect business activity to be higher in 12 months, with a similar proportion expecting a decline.

“It is no surprise that the ser-vices sector continues to contract but it was encouraging to note that confidence actually increased on the month,” said Brian Devine, economist at NCB Stockbrokers.

Many survey respondents reported a fall in new business orders with a number of existing projects being suspended or cancelled. New orders from overseas continued to fall, although there was an easing in the rate of reduction.

Input costs fell at a record pace last month as businesses cut jobs and salaries to deal with the drop in demand. March was the third successive month in which costs fell.

“The flexibility of the private sector wage force is a positive for Ireland and is one key component for the restoration of Ireland’s competitive position,” said Mr Devine.

“Downward flexibility in wages is one factor which distinguishes Ireland from many of its Euro area counterparts,” he said, adding that the flexibility of the private sector had to be matched by the public sector if genuine competitive gains are to be made.

Output prices also dropped at a record pace as companies competed for business and tried to coax consumers into spending, according to the survey complied by Markit. Output prices have now fallen for eight successive months.

A survey of business activity in the euro zone published yesterday showed the service sector contracted again in March but at a slower pace than in February.

The measure of business expectations in the euro zone jumped to 61.1 from 54.9, showing an increasing proportion of managers believe business will have improved in 12 months.

A similar survey in Britain showed the services sector rose to a six-month high of 45.5 in March, with a rise in all measures except employment.