Services sector boasts further growth

Ireland’s services sector expanded during March, as companies operating in the sector continue to benefit from a recovering economy. However, the sharp fall in the value of the euro during the month contributed to a significant rise in input costs.

According to the latest Services Purchasing Managers’ Index from Investec, March saw further growth in new orders, as the headline PMI reading of 60.9 demonstrates “clear and consistent strong growth”, bringing the current sequence of expansion to 32 consecutive months.

Philip O’Sullivan, chief economist, Investec Ireland, said that the latest survey reveals further expansion of activity in March.

“While the rate of growth implied by the headline PMI moderated for a third successive month to 60.9 (from 61.4 in February), it is consistent with a sharp rate of expansion, with the sequence of above-50 readings now extending to 32 successive months,” he said.

Irish services companies benefited from healthy demand from both domestic and overseas customers, according to Investec, with the New Orders index still well above the series average.

Employment across the services sector continues to be broad-based, Mr O’Sullivan said, with data for the four segments of the services industry – TMT, business services, financial services and travel & leisure -reporting simultaneous growth in headcounts for a sixteenth successive month.

However, the survey also revealed that the impact of the European Central Bank’s quantitative easing programme, aimed at stimulating growth in the euro zone, is somewhat of a double-edged sword. The fall in the value of the euro against Ireland’s largest trading partner, the UK, contributed to a sharp rise in input costs in March, but new orders also grew at a substantial pace with new business from abroad, in particular from the UK.

Looking ahead, Mr O’Sullivan noted that, despite recent slippage, the expectations index remains well above the series average, signalling that services firms remain upbeat on their prospects.

“A tangible sign of this is the ongoing rise in payrolls in the sector. Given these factors, we are confident that further encouraging Services PMI readings will be posted in the coming months.”

Meanwhile, euro zone business activity accelerated in March at its fastest pace for nearly a year as customers took advantage of ongoing price discounting to place new orders at a rate not seen since mid-2011, a survey found.

The upbeat survey will provide welcome news for the European Central Bank just weeks after it embarked on a trillion- euro asset-purchase programme to try and spur growth and inflation.

Markit’s final March Composite PMI, seen as a good indicator of growth, stood at 54.0, a touch below the preliminary estimate of 54.1 but well ahead of February’s 53.3. A reading above 50 implies growth.

“The PMIs are indicating somewhat sluggish GDP growth of 0.3 per cent for the first quarter. However, the important message from the survey data is that the pace of expansion looks set to gather pace in coming months,” said Chris Williamson, Markit’s chief economist.

A sub-index measuring new orders leapt to 54.1 from 52.5, its highest since May 2011. That suggests a healthier outlook although the survey also showed companies have now been cutting prices for three years, although not as sharply in March.

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