Service industry grows modestly in December

Transport, tourism, and leisure businesses posted a fourth successive decline in activity, albeit at a weaker rate than in November.

Service firms experienced a modest boost in activity during the festive period, but high input costs continued to put this growth under pressure, according to a new survey.

Firms continued to pass on high costs to customers, including soaring energy bills and wages, showed AIB’s latest S&P Global Purchasing Managers' Index, or PMI.

“However, the pace of increase in charges fell to its lowest level since August, albeit this was still the 10th highest on record,” said Oliver Mangan, AIB’s chief economist.

The survey also showed that while businesses got some relief as input price inflation slowed notably in December, these costs stayed stubborn at elevated levels.

"Businesses continued to experience strong upward pressure on input prices, with firms referencing higher utility and labour costs,” said Mr Mangan.

“The rate of increase, though, fell to an 11-month low, pointing to some easing in inflationary pressures.” 

Cost pressures

Cost pressures moderated last month, with service providers seeing steeper increases in input prices than manufacturers for the fifth straight month. 

Charge inflation picked up slightly though and remained historically strong.

There was some optimism among firms as some experienced a slightly faster rate of expansion in Irish service sector output last month, but the pace of growth was still the second-weakest registered over the current 22-month period of expansion.

"Service demand growth quickened in Ireland during December, while remaining modest overall, with just a marginal increase in new export business,” said Mr Mangan.

“There was only a slight increase also in backlogs of outstanding business.” 

Technology, media, and telecoms service business reflected the overall pick-up in growth highlighted by the survey.

These categories were also the only ones in the services sector to register an expansion that was stronger than the long-run average.

Financial services

Financial services registered a near-stagnation in activity in December, while transport, tourism, and leisure businesses posted a fourth successive decline in activity, albeit at a weaker rate than in November.

"As has been the case for some months now, the services PMI in December continued to be weighed down by a very weak performance in the transport, tourism, and leisure sectors,” said Mr Mangan.

Meanwhile, employment in service providers rose again for the 25th month running in December, in both the private and public sectors.

However, the rate of job creation was the slowest since February 2021.

“There was a further solid rise in employment, while firms’ outlook for the next 12 months improved, recovering the ground lost in November,” said Mr Mangan.

While expectations for activity improved for December, they remained weak in the context of historic survey data, reflecting firms' concerns around a potential recession, the energy crisis and high inflation dampening demand.

Confidence remained weakest in the key business services sector.