According to the AIB Purchasing Managers’ Index (PMI) survey data for March 2022, Ireland has just experienced the strongest growth in its services sector for five months, but the outlook darkened due to the Russian invasion of Ukraine, and inflationary pressures surged to new record highs.
AIB stated that demand was strong, driven by a resurgence in the transport, tourism and leisure sector, but overall expectations for the next 12 months were the weakest since the opening month of 2021. March’s drop in sentiment was exceeded only twice in the survey’s history: in March 2020 and September 2001.
The Services Business Activity Index rose to 63.4 in March, from 61.8 in February, and the latest figure signalled the strongest growth in activity since October 2021, as well as a faster expansion than the trend over the current 13-month sequence of increases. AIB noted that – since the survey started in 2000 – the index has averaged 55.1, and growth over the first quarter as a whole was stronger than in the final quarter of last year, but slightly behind the performances that were shown in the second and third quarters.
Transport, Tourism And Leisure
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According to AIB, subsector data signalled strong growth across all monitored areas in March, with the fastest expansion, by far, being seen in transport, tourism and leisure (71.3), which posted a near record rate of growth. Stronger activity growth reflected a further sharp expansion in new business, as demand improved with the continued reopening of markets. Growth has eased since February, but remained well above the long-run survey trend, with transport, tourism and leisure recording the fastest growth.
AIB stated that March data revealed record cost pressures on Irish service providers, and input price inflation soared to the highest level since the survey started. The month-on-month acceleration was also a record, with firms linking inflation to energy, fuel, labour, insurance, transport and the war in Ukraine. Service providers responded by raising their own charges at an unprecedented rate, as charge inflation easily surpassed the previous record set in October 2000, with transport, tourism and leisure posting the steepest rate among the four subsectors, by far. Confidence weakened to a 13-month low, according to AIB.
Increased Employment Rate
AIB also stated that, while faced with record cost pressures, services firms increased employment at the fastest rate in seven months in March, and this reflected rising workloads, the replacement of earlier pandemic-related lay-offs, and preparation for the reopening of markets.
Statement By AIB Chief Economist
AIB chief economist Oliver Mangan stated, “The AIB Irish Services PMI showed very strong growth in the sector in March, as the recovery in services activity continued to gain momentum following the lifting of Covid restrictions earlier in the year. The Business Activity Index rose to 63.4 from 61.8 in February and 56.2 in January. The Irish index was above the flash readings in the Eurozone and UK, of 54.8 and 61.0, respectively.
“There was further strong growth in new business, including exports, while employment rose at its quickest pace since August. The rebound in demand is putting growing pressure on operating capacity, with the volume of outstanding business rising at its fastest pace since 2000. This was also linked to Covid-related staff absences and supply difficulties.
“Strong growth in activity was evident in all four subsectors covered in the survey. Most notably, activity in transport, tourism and leisure increased at the second-fastest rate on record in March. It registered the fastest growth of all four sectors for total activity, new business, and exports, however, the war in Ukraine and inflationary risks knocked business confidence in all four subsectors in March. The overall Services Future Activity Index posted the third-largest month-on-month decline in the series’ history, hitting its lowest level since January 2021.
“Meanwhile, businesses continued to experience severe upward pressure on input prices, in particular from higher labour, energy, fuel, insurance and transport costs. Indeed, the rate of input price inflation was the fastest in the 21-year history of the survey. Meantime, the prices charged to customers also rose at a record pace. Price pressures were most acute in the transport, tourism and leisure sector.”
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