The country’s services sector slipped into contraction in April for the first time in more than five years, as rising costs and weakening demand weighed on business activity amid ongoing geopolitical instability linked to the Middle East conflict.
The latest AIB S&P Global Services Purchasing Managers’ Index (PMI) fell to 49.7 in April from 50.7 in March, dropping below the 50 threshold that separates expansion from contraction. It marks the first decline in activity since February 2021.
The reading placed the sector above the eurozone flash PMI of 47.4, but below comparable figures recorded in the United States and the United Kingdom.
The index covers a broad range of industries, including financial services, technology, media and telecoms, as well as transport, tourism and leisure. It provides an overall snapshot of business conditions across the services economy.
According to AIB chief economist David McNamara, uncertainty in global markets, higher operating costs and geopolitical tensions were key factors driving the downturn. He said these pressures contributed to weaker demand and reduced confidence among businesses during the month.
New business orders declined slightly in April, ending a growth streak that had been ongoing since March 2021. Export demand also fell for the first time since June last year, signalling a broader softening in international activity.
At the same time, inflationary pressures intensified. Input prices rose at their fastest rate since December 2022, driven by higher fuel, freight and energy costs, alongside wage increases across multiple sectors.
Businesses responded by passing increased costs onto customers, resulting in the sharpest rise in output prices in two years. Analysts say this trend reflects continued cost pressures across supply chains and operating environments.
Despite the slowdown, companies remain cautiously optimistic about future activity. The 12-month outlook stayed positive but weakened slightly compared with March, hovering just above a 65-month low.
David McNamara noted that while expectations remain in positive territory, they are subdued, reflecting ongoing uncertainty in both domestic and global markets.
The report highlights how external shocks, including geopolitical tensions and energy price volatility, are increasingly shaping business conditions across the services economy. With inflation still elevated and demand softening, analysts suggest firms may face continued pressure in the months ahead as they balance rising costs with weaker customer demand.
