Euro service sector contracts in contrast to British trend

IRELAND’S service sector contracted in May in line with the rest of the eurozone but in sharp contrast to the country’s largest traded partner Britain.

The NCB Purchasing Manager’s Services Index for Ireland, like its manufacturing counterpart, indicated a slowdown, with the Business Activity Index falling to its lowest level in 18 months at 47.5 (figures over 50 indicate growth, below contraction).

Commenting on the survey NCB Stockbrokers senior economist Eunan King said: “The service sector contracted again in May as both domestic and foreign demand weakened.

"Margins remained under pressure though input cost increases are slowing. Employment contracted marginally. Not a comfortable month in the service sector.”

The NTC Research compiled PMI data indicates that pressure on margins continues leading to net job losses in the service sector:

“Despite the strong growth in costs, May saw reports from a number of panel firms which pointed to the existence of a buyers’ market for services.

"Panellists indicated that intense pressure from clients had led to the second successive monthly fall in average charges,” a commentary on the report by NCB stated.

The services sector in Europe contracted for the fourth straight month in May, with Germany again providing the drag. Britain, however, saw strong growth in new orders.

In the eurozone, the purchasing managers index for the services sector rose slightly to 47.9 in May from 47.7 in April, according to a Reuters/NTC Research survey released yesterday.

In Britain the services sector purchasing managers index stood at 51.9, up from April’s 50.7, according to a Reuters/Chartered Institute of Purchasing and Supply survey released Wednesday.

In Ireland and the eurozone, the manufacturing sector also contracted, and the composite PMI for services and manufacturing fell to 48.2 in May from 48.4 in April, indicating that private-sector activity is contracting.

The manufacturing PMI, released Monday, dropped to 46.8 from 47.8 in April, well short of an expected rise to 48.2.

The measure of new business in Ireland fell slightly to 47.8 and in the eurozone fell to 45.6 from a revised 46.4, its lowest level since November, 2001.

Business expectations also faltered, falling to 69.3 in Ireland and 61.9 for the eurozone as a whole