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Pandemic uncertainty and Brexit deliver October hit to services

Business activity for Ireland’s services sector suffered a second
monthly decline in October as uncertainty over the pandemic and Brexit
hit expectations, according to the AIB Ireland Services PMI.

The “renewed
downturn” in activity followed a brief period of growth in July and
August after the economy re-opened following the first Covid-19

The rate of decline was relatively modest, however, with some sub-sectors performing strongly.

The business
activity index for October registered 48.3, below the no-change level of
50, but an improvement from the 45.8 recorded in September.

“The detailed PMI
data point to ongoing difficult business conditions for many services
firms. Weak demand was evident in a continued decline in new business
from both at home and abroad,” said AIB chief economist Oliver Mangan.

“Firms linked the
weakness of demand to Covid-19 restrictions. Falling orders saw
backlogs decline again for the eighth consecutive month. Meanwhile,
margins are being squeezed, with input costs rising more quickly than
output prices. Firms are responding to these challenges by continuing to
cut their workforces in October.”

The sectors with the strongest declines were transport and tourism and leisure. Business services, contrast, showed a strong rise in activity – the third expansion in four months.

Services sector employment fell for the eighth month in a row in
October with companies reporting redundancies and reduced working hours,
but the decline moderated.

Cost pressures
due to expenditure on Covid compliance continue to be a feature, with
higher input prices being passed onto customers.

Although business activity remained soft, the 12 month outlook stayed positive, as firms expect the impact of the pandemic to fade.

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