Rate of contraction in services industry slows
The decline in the rate of business activity in the Irish services sector has slowed in December.
The seasonally-adjusted NCB Business Activity Index rose to 48.3 in December, from 46.8 in November – the weakest rate of contraction since February 2008. A score of more than 50 indicates growth.
Falling new business was again a key factor behind lower activity, which has now declined in each of the past 23 months.
Companies remained optimistic that activity will be higher this time next year, with positive sentiment recorded for the eighth successive month. Panellists expect the wider economy to improve during 2010, with new product launches leaving firms well placed to benefit from any economic upturn.
However, staffing levels decreased in December, and at a substantial pace. The reduction largely reflected adjustments to declining demand, and attempts to reduce costs. However, the rate of job cuts slowed to the weakest in seventeen months. Close to 26% of respondents highlighted lower employment during the month.
Consistent with the trend for activity in December, new orders fell at a slower pace during the month. However, clients remained cautious, and were therefore reluctant to commit to new expenditure, leading to a twenty-third successive contraction in new business.
The contraction in new orders was registered despite a fourth consecutive increase in new business from abroad. Moreover, the rate of expansion of new export orders in December accelerated to its strongest since October 2007.
As overall new orders fell again in December, they were insufficient to compensate for completed work. Panellists subsequently continued to deplete backlogs during the month, and at a marked pace.
Lower salary payments in December were a key reason behind the latest drop in input costs at Irish services companies.
The 12th successive monthly decline remained sharp, despite easing to its slowest since January. Output charges also decreased, extending the current period of reduction to seventeen months.
Furthermore, the rate of decline was considerable, with respondents noting increased competition for new business, as well as pressure from clients to offer discounts.
“The services sector contracted once again in December but the pace of decline continues to moderate,” said Brian Devine, economist at NCB Stockbrokers. “The drag continues to come from the domestic part of the economy as international new orders actually expanded for the fourth month in a row. While global recovery is leading Ireland out of recession we would expect that by the end of Q1 both GDP and GNP will have expanded.”
