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The service economy takes off in May amid pent-up demand

Total services activity grew at the fastest pace in more than five years in May, while cost pressures on Irish service companies reached their highest level in nearly 13 years, according to the AIB’s latest purchasing managers index (PMI) survey.

The survey confirmed a “sharp recovery in growth” in the services economy in May, as the loosening of foreclosure restrictions led to the release of pent-up demand. The acceleration in activity has been the fastest since March 2016, while employment growth has also strengthened.

The index went from a reading of 57.7 in April to 62.1 last month, remaining well above the threshold of 50 which marks the point at which the sector begins to expand. The jump was in line with the early indicators of services PMIs across the eurozone, the UK and the US.

“Data for May signaled an increase in demand in the Irish economy, with new business growing at its fastest pace since early 2017,” said Oliver Mangan, chief economist of AIB.

“On the other hand, the growth of new export business slowed down, notably hampered by a contraction of overseas business in the transport and tourism sector, no doubt due to continued restrictions on international travel. . “

Mangan nonetheless called it “encouraging” to see growth in overall business.

“The upturn in new business resulted in a clear increase in the volume of outstandings for the third consecutive month. Meanwhile, employment also rose sharply for the third month in a row, ”he said.

However, cost pressures continue to intensify, with input price inflation reaching its highest level since July 2008. Companies reported contributing factors such as labor, fuel, insurance. , energy, transport costs and Brexit-related increases.

There is also some evidence that businesses passed on the higher costs to customers, with prices charged by Irish service providers rising for the third consecutive month in May. However, these price increases are being implemented at a more moderate pace, “indicating further margin squeeze in the industry”.

Businesses were bullish for the next 12 months, with overall sentiment being the brightest recorded by the survey since September 2017.

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