Services sector shrinks at record rate in November

Ireland's services sector contracted at the fastest pace in over eight years in November as the domestic recession and global downturn hit demand.

The NCB Purchasing Managers' Index survey fell in November to 32.6 from 36.1 the previous month, the tenth consecutive month the index has been below the 50 mark separating growth from contraction.

The index measures a range of business sectors including; haulage, IT, the financial sector and tourism and was at its weakest last month since data was first collected in May 2000.

Brian Devine, economist at NCB Stockbrokers said: "Anecdotal evidence suggested that the principal cause of the latest reduction in activity were conditions in the wider Irish economy where the economic downturn has led to a steep fall in new business".

Ireland was the first euro zone country to enter recession as the property market slowed sharply and this has been compounded by the global financial market crisis.

The measure of business confidence dropped to 43.6 in November from 46 in October with businesses surveyed pessimistic about their prospects for the coming months.

"Irish service providers were more pessimistic in November than at any other time in the survey's history," said Markit, which compiles the survey of about 600 Irish companies.

"Panellists largely attributed negativity to the weak global economic climate, with many companies expecting the downturn in Ireland to intensify during 2009," the report said.

Jobs were lost in the sector at the fastest rate on record according to the survey, as businesses reacted to lower demand. Almost one in three companies surveyed said they reduced employment last month.

New business also declined at a record pace last month with some companies reporting greater caution by clients prior to making purchasing decisions.

This brought the new business reading in the report to 32.7 down from 32.9 in October and a sharper month-on-month decline.

The report noted companies were concerned clients would reduce their expenditure over the next year leading to a further fall in sales volumes. "More than two-fifths of respondents indicated that they expect their activity to be lower in twelve months' time," Markit said.

Falling demand and retreating oil prices resulted in cost inflation also hitting a record low last month. "Weak demand and lower fuel costs contributed to an easing in input price inflation during November," the report found.