The services sector in Ireland declined at its slowest pace in almost two years last month, with both activity and new orders falling at slower rates, new data showed today.
The NCB Purchasing Managers' Index (PMI) rose to 48.3 in December, edging closer to the 50 mark that separates growth from contration. This is the highest level since February 2008.
The sub-index measuring new export business rose to 54.7 from 52.7 in the previous month, showing the strongest performance since October 2007.
"The drag continues to come from the domestic part of the economy as international new orders actually expanded for the fourth month in a row," said Brian Devine, economist at NCB Stockbrokers.
The country technically pulled out of recession in the third quarter with gross domestic product (GDP) expanding versus the previous three months, but economists cautioned that was not the end of the crisis.
Gross national product (GNP) - seen as a more accurate measure of the performance of the domestic economy because it excludes profits earned by multinationals - fell 1.4 per cent in the third quarter of 2009.
"While global recovery is leading Ireland out of recession we would expect that by the end of Q1 both GDP and GNP will have expanded," Mr Devine said.
There was some indication that companies were becoming more optimistic about the economy. According to the survey, there was positive sentiment recorded for the eighth successive month, and there was an expectation that the wider economy would improve during 2010.
Overall new orders fell at a slower pace in December in the services sector.
"However, clients remained cautious, and were therefore reluctant to commit to new expenditure, leading to a twenty-third successive contraction in new business," said Markit, which compiles the data.
Companies continued to shed workers. However, the rate of job cuts has slowed, recording the weakest in 17 months. Almost 26 per cent of respondents highlighted lower employment during the month.
Another PMI survey showed on Monday that Ireland's manufacturing output contracted in December and ended a one-month return to growth as the sector at large continued shrinking at an unchanged pace.
Meanwhile, the euro zone's services sector expanded at its fastest pace in over two years in December, albeit slightly slower than the flash estimate, while Spain saw a deeper contraction.
Markit's final Eurozone Services PMI of around 2,000 companies, ranging from banks to restaurants, rose to a 25-month high of 53.6 last month from 53.0 in November, but revised down from a flash estimate of 53.7.
This is the fourth consecutive month the index has been above the 50.0 mark that divides growth from contraction. But this comes after the index slumped to lows last year not seen in the index's 11 year history amid the worst recession in Europe since the Second World War.
Growth was led by buoyant activity in Germany and France, while Italy saw its index bounce above the 50.0 mark. But it was a different story in Spain, which saw activity decline further and at a faster pace than in November.
"The recovery is not being felt by all, and it is worrying to see Spain showing signs of a 'double dip' recession and lagging so far behind the other large euro area service economies," said Rob Dobson at data provider Markit.
A separate report showed the UK services PMI rose to its highest level since September 2007.
The divergence was also seen in the manufacturing sector, but data released on Monday showed the euro zone as a whole saw growth for the third straight month.
The combined rises pulled the composite PMI up to 54.2 in December, from 53.7 in November, the highest reading since October 2007 and in line with an earlier flash estimate.
The services new business index rose sharply to 53.3 in December from 51.2 in November and above an earlier 53.0 flash reading. That is the highest level since November 2007 and is the fourth month above 50. The business expectations index also rose again after dipping in November and was revised up sharply from the flash.
But companies are still shedding workers.
The composite employment index remained negative for the eighteenth month at 46.1, down from a flash reading of 46.5 but up from November's 44.9.
Figures due on Friday are expected to show official unemployment rose to 9.9 per cent across the bloc in November, up from October's 11-year high of 9.8 per cent.
The European Central Bank has slashed interest rates to a record low of 1.0 per cent and adopted a loose monetary policy in a bid to pull the economy out of a deep recession. This appears to have paid off, with figures due on Friday expected to confirm a return to growth of 0.4 per cent in the third quarter.
Additional reporting - Reuters