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Services Sector Sees Strong Growth as Inflationary Pressures Ease

Activity in the services sector surged in November, driven by easing inflationary pressures and strong demand, according to the latest data from the AIB Purchasing Managers’ Index (PMI). The index rose to 58.3, up from 53.8 in October, marking the fastest expansion in activity since April 2023.

A reading above 50 indicates overall growth, and the latest figure shows that business activity in Ireland outpaced that of the Eurozone, UK, and US, where flash PMIs stood at 49.2, 50.0, and 57.0, respectively.

All four sub-sectors of the services industry showed faster growth in November. Financial services emerged as the best performer, while the transport, tourism, and leisure sectors saw the slowest rate of expansion.

John Fahey, Senior Economist at AIB, attributed the growth to robust demand conditions. “New business rose at its fastest pace since March. Meanwhile, export orders improved for the fourth consecutive month,” Fahey noted. He also highlighted that the volume of outstanding work increased, although the rate of backlog growth slowed for the third month in a row.

Despite strong demand, cost pressures remained a challenge. However, input cost inflation stabilized at one of its lowest levels in nearly four years, allowing service providers to raise their charges more slowly. The rate of charge inflation was the weakest since April 2021, although still above the long-term average.

Employment growth showed improvement in November after a slowdown in October. The rate of job creation was stronger, but still below the average for 2024 and the long-run trend. The technology, media, and telecoms sector saw the strongest pace of hiring.

Looking ahead, service providers remain optimistic about the next 12 months. Approximately 40% of companies expect to increase business activity, while only 8% forecast a decline. However, overall confidence was at its weakest in two years, falling below the long-term survey average.

The data suggests that while inflationary pressures persist, the services sector’s growth is poised to continue, with strong demand and improved export orders driving expansion across most sub-sectors.

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