AIB survey shows services industry now is coping better with lockdown

AIB's Oliver Mangan

Ellie Donnelly Twitter Email

April 07 2021 02:00 AM

Ireland's services sector rebounded sharply last month, driven by growth in new business and exports, according to the latest analysis from AIB.

The services sector – which spans industries from bars and hotels to banking – is the biggest contributor to the country's economy.

The Services PMI reading rose to 54.6 in March, from 41.2 in February. This was the first expansion in services activity since December, and the strongest rate of growth since February last year, just before the country went into its first lockdown.

Growth of overall business activity was driven by a revival in demand in March, with firms reporting increased customer enquiries as well as the start of new projects that had been held up by the Covid-19 pandemic.

New business rose for only the second time in 13 months, and at a much faster rate than the previous increase last August.

This partly reflected improving export demand, which grew for the first time since February 2020.

Companies reported stronger sales to European and United States markets, as well as the resumption of UK business following a pause at the start of 2021.

Oliver Mangan, AIB chief economist, said the latest Services PMI figures signal “improved business conditions in the sector rather than activity returning to more normal levels”.

“Much of the services sector remains in lockdown, but the data suggest some businesses are now better able to cope with Covid restrictions,” he added.

On the back of increased demand employment rose for only the second time since the start of the Covid-19 pandemic.

The increase in hiring employees also reflected improving sentiment among Irish service providers, with expectations for activity in 12 months' time at a 33-month high last month.

Companies widely expected normal trading conditions and travel to resume over the coming year, enabled by vaccination programmes and the lifting of lockdown restrictions.

While there was a strong rate of business expansion in the financial services sector, activity in transport, tourism and leisure declined for the eighth month running, but at the slowest rate since last August.

When it comes to prices and costs, input price inflation accelerated sharply in March to a 13-month high.

Anecdotal evidence from survey respondents linked the greater cost pressures to fuel, shipping, insurance, wages, raw materials and Brexit. In response, firms raised their own charges to protect profit margins, however, the rate of inflation was weaker than in recent years prior to the pandemic.

“All sectors are experiencing a severe margin squeeze, with further sharp increases in input costs, but limited ability to pass these on in higher prices,” Mr Mangan said.