Services sector growth slows amid rising costs - PMI index

The AIB survey also displayed sharp increases in business activity and new orders in the Irish service sector, demonstrating a continued recovery from the Covid-19 pandemic.

After over a year of persistent growth, the service sector is slowing as prices and rising input costs put pressure on businesses.

The AIB S&P Global Purchasing Managers' Index (PMI) released today, showed that the business activity index was 60.2 for May, down from 61.7 in April.

Despite this slight drop, the AIB survey also displayed sharp increases in business activity and new orders in the Irish service sector, demonstrating a continued recovery from the Covid-19 pandemic. The rate of job creation increased to a ten-month high.

Fuelled by summer holiday plans, the transport, tourism and leisure sector experienced the largest level of growth in activity, new business and employment. Meanwhile, rates of expansion were found to be slower in the business services, financial services and technology sector, as well as the media and telecoms category.

The sector which experienced the most inflation was transport, tourism and leisure. However, rising costs are impacting all businesses with approximately two-thirds of those surveyed highlighting an increase in input prices during May.

The survey showed that it was the fourth consecutive month whereby the index has been above 60, demonstrating a continued strong recovery in services activity after the removal of public health restrictions in January this year.

Ireland's index figure for May is above the figures recorded for both the Eurozone and UK at 56.3 and 51.8 respectively, with the latter declining greatly last month.

Commenting on the survey results, Oliver Mangan, AIB Chief Economist, said: "There was another marked rise in new business for Irish services firms, including exports, as they continued to benefit from the release of pent-up demand. Meantime, employment growth accelerated to its fastest rate since last July. 

"In terms of the four sub-sectors covered in the survey, business services recorded the slowest growth, while the strongest expansion was once again in transport, tourism and leisure. Indeed, this sector continued to see the fastest growth in total activity, new business, exports, outstanding business and employment.

"Meanwhile, businesses continued to experience severe upward pressure on input prices, in particular, fuel and wage costs. This, in turn, is leading to higher prices being charged to customers. Indeed, the rate of growth in both input price inflation and prices charged was the second-fastest in the 22-year history of the survey," he added.