The outlook for the services sector, as measured by AIB in its monthly Purchasing Managers’ Index, darkened considerably in March following the Russian invasion of Ukraine and record price inflation across the sector.
The drop in sentiment last month was exceeded only twice in the survey history, in March 2020 and September 2001.
However, demand remained strong in the month driven by a resurgence in the Transport, Tourism & Leisure sector.
That saw growth registering the strongest level in five months.
The services sector covers areas as diverse as communications, information technology, financial and business services and the tourism and hospitality trade.
The Services Business Activity Index rose to 63.4 in March, from 61.8 in February, with any measure over 50 signalling expansion in a sector.
Since the survey began in 2000, the Index has averaged 55.1.
Growth over the first quarter of the year as a whole was stronger than in the final quarter of last year, but slightly behind the performances shown in the second and third quarters.
Similar to the manufacturing PMI, the March report also uncovered record cost pressures at Irish service providers.
Input price inflation soared to the highest level since the survey began in 2000, and the month-on-month acceleration was also a record.
Firms linked inflation to energy, fuel, labour, insurance, transport and the war in Ukraine.
Service providers responded by raising their own prices at an unprecedented rate, as charge inflation easily surpassed the previous record set in October 2000.
Although faced with record cost pressures, services firms increased employment at the fastest rate in seven months in March.
Employment was driven by rising workloads, the replacement of pandemic related layoffs and preparations for the reopening of markets.
“Strong growth in activity was evident in all four subsectors covered in the survey. Most notably, activity in Transport, Tourism & 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,” Oliver Managan, chief economist with AIB noted.
“However, the war in Ukraine and inflationary risks knocked business confidence in all four sub-sectors 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,” he added.