Services growth strengthens but exports hit four-year low

Ireland’s services sector continued to grow in March, but weaker sterling hit new business from abroad, with the sector expanding at its slowest pace in almost four years.

The Investec Purchasing Managers' Index (PMI) of activity in services climbed to 62.8, up from 62.1 in February, a "considerable" rate of expansion, the survey said.

The growth pushed the index back towards the 64.0 it reached at the start of the year, the highest since June 2006, at the height of the economic boom.

The index, which covers businesses from banks to hotels, has risen for more than three years of unbroken growth, denoted by a reading over 50, and been above 60 for most of that time.

Confidence among Irish services companies climbed during the month as general improvements in the wider economy lifted the outlook for the coming year.

However, it wasn’t all good news, with the sub-index measuring new export business dipping to 54.0 from 57.1 in February. That reading was the lowest level recorded since May 2012, in the middle of the economy’s three-year bailout.

“The rise in new export orders was much weaker than the increase in total new business,” the report concluded. “That said, new business from abroad has now expanded in each of the past 56 months.”

Irish exporters are particularly vulnerable to movements in sterling, since Britain is the country’s largest trading partner, and the pound has lost around 12 per cent of its value against the euro since November.

“While panellists indicated that the UK remained a source of new business, there were suggestions that the recent strengthening of the euro against sterling had weighed on growth of new business,” said Philip O’Sullivan, Chief Economist at Investec Ireland.

“Despite the moderation in new orders and (we suspect related) global uncertainty, business sentiment ticked higher in March, with 19 times as many panellists expecting a rise in activity over the next twelve months as opposed to those who anticipate a contraction.”

A survey on Friday showed Irish manufacturing growth rebounded to an eight-month high in March,

“Taken together, the services and manufacturing PMIs suggest that the pace of growth across much of Ireland’s private sector improved slightly at the end of Q1 2016,” Mr O’Sullivan said.

Additional reporting: Reuters