Double-dip fear as services decline

DECEMBER saw the first decline in activity in the services sector for a year, prompting one international economist to suggest that the Irish economy is officially in double-dip recession mode.

New York University professor, Nouriel Roubini — who claims to have predicted the global recession of 2008 and the collapse of the housing market in the US — expressed his opinion on the back of the results of the latest monthly services PMI (Purchasing Managers’ Index) from NCB Stockbrokers, published yesterday.

Those results showed a slight decline in business activity during December (although the index reading in this regard was down from a positive 52.7 points in November to a negative 48.4 points in December), a second consecutive monthly dip in business confidence amongst services companies, the eighth successive month of job shedding and a decline in new business levels. All of this added up to the first decrease in services activity in Ireland since December 2010.

NCB’s chief economist, Brian Devine, said that the fall in new orders is likely to lead to continued contraction in the services industry over the early part of this year, especially as the domestic economy remains weak. However, Mr Devine noted that the continued increase, last month, in new export business bodes well for the short-term future.

“Once again, the export component within new export orders remained above the 50 point mark and — ultimately — like for the economy as a whole, this will be sufficient to outweigh the drag from domestic demand in 2012, to ensure a positive GDP number. GNP, though, is likely to be flat and employment is likely to decline — the two-tiered economy continues,” Mr Devine said.

Earlier this week, NCB published its December PMI for Ireland’s manufacturing industries — which also bore bad news, in that it showed a sector still a long way from growth and declining at a faster rate last month than in November.

With regard to yesterday’s services index, respondents also noted a faster rate of profit decline in December, as compared to that witnessed in November.