New business growth hits six-month low amid rising cost pressures, AIB survey finds

AIB survey shows moderating new business growth, rising cost pressures and weaker expansion across key services sectors

Irish service providers did raise employment in February, extending the current sequence of job creation to six months. File picture

Business activity in February rose at its slowest pace in six months, with new business in the transport and tourism sectors falling.

The latest AIB Ireland Services PMI survey showed activity was at a pace that remained below the long-run survey trend. 

The seasonally adjusted index fell for the third month running to 51.8 in February, from 54.5 in January. A reading above 50 indicates an overall increase compared to the previous month.

The latest figure was the softest rate of expansion in total activity in six months, and one that was below the long-run survey average. However, February's expansion extended the current sequence of growth to five years.

Financial Services, at 55.4, remained the fastest-growing sector in February. 

Business Services (51.2) and Transport, Tourism & Leisure (50.2) registered only modest increases in activity, while Technology, Media & Telecoms (TMT, 49.9) saw a broad stagnation.

The rate of expansion in new business moderated for the third month running in February. The latest expansion was the softest in six months and below the long-run trend. 

New business fell slightly in Transport, Tourism & Leisure, but rose solidly elsewhere. New export business rose only modestly during February.

Business sentiment

David McNamara, chief economist with AIB, said for the broader outlook, business sentiment saw an uptick, with firms optimistic for their prospects in the coming 12 months, linked to new projects and business opportunities.

"On the inflation front, the input cost index remained elevated, implying rising cost pressures in the sector," he said. 

"Wages, pensions and energy costs were cited as key drivers of higher costs. However, the rate of increase in prices charged decelerated, implying some margin compression for firms seeking to pass on these higher costs."

A further slowdown in services business activity growth in February resulted in the weakest overall expansion in output in five months. 

New business growth eased to a six-month low, and cost pressures neared a three-year high.

The AIB Output Index decreased from 53.3 in January to 52.5 in February. 

The latest figure signalled a moderate overall expansion that was the slowest since last September, and softer than the long-run average (53.8). 

Employment growth

Irish service providers did raise employment in February, extending the current sequence of job creation to six months. 

The rate of workforce growth is weaker than the long-run survey average, however, and eased since the start of the year.

Increased staffing reflected new business, planned projects and new roles. 

Three out of four sectors registered growing workforces in February, led by Financial Services. Transport, Tourism & Leisure posted a fractional decrease.