EU services sector 'set to contract'
The mood among Irish and EU service providers has deteriorated, resulting from the impact of the wider financial market turmoil and as signs of a worldwide downturn have grown, according to a report released today.
The key development from the latest KPMG European Business Outlook Survey, which surveys around 2,800 service sector firms across Ireland, Germany, France, Italy, Spain and the UK, is that the 12-month outlook for business activity has turned negative.
Following expectations of weaker growth over the previous two surveys, activity is now expected to contract on both the volume and revenue measures.
Moreover, every non-price measure has fallen into negative territory, including new business, employment, profits, capital expenditure and outsourcing.
According to Terence O'Rourke, managing partner, KPMG: "The services sector across the EU has suffered a steep fall in activity and the situation is particularly pronounced for Ireland.
"Businesses that are focussed on moving with pace to manage both costs and cash flow, whilst ensuring structures to maximise sales revenues, will be best placed to ride out the challenges."
Total input costs for service providers are still expected to rise overall, but at the weakest rate in the history of the survey.
This follows record-high expectations when the survey was conducted in spring 2008 when oil prices were still climbing. With reduced upward pressure on input costs and declining demand conditions, service providers' expectations for inflation also sank to a new low.
O'Rourke continued: "While the latest survey findings firmly point to the onset of recession across the EU over the next twelve months, it is encouraging that inflation expectations are also lower."
With lower anticipated inflation, Central Banks have triggered interest rate cuts globally.
O'Rourke commented: "Lower interest rates will ease pressure on disposable incomes and will give some comfort to the Irish services sector; however, we expect 2009 to be a challenging time across the board."
