Irish service sector growth slows markedly in June, PMI shows

Ireland's service sector expansion slowed markedly in June, with the AIB Global S&P PMI falling to 51.5 from 54.7, marking its weakest growth rate since January 2024 and one of the lowest readings in over four years of unbroken expansion. This deceleration, driven by softer output, reduced hiring, and the first decline in new export orders in 20 months due to weaker U.S. and European markets and global trade tensions, contrasts with robust manufacturing growth during the same period. While prices charged by service firms rose at their slowest rate in over four years, offering some inflation relief, service providers' optimism about future growth remains close to post-pandemic lows, signaling potential headwinds despite the sector still outperforming the wider euro zone.

Analysis

Ireland's service sector expansion decelerated sharply in June, with the AIB Global S&P PMI falling to 51.5 from 54.7 in May, marking one of the weakest growth readings in over four years. This slowdown is primarily driven by softer output, a reduced pace of hiring, and a notable decline in new export orders for the first time in 20 months, which survey respondents attributed to weaker demand from the U.S. and Europe amid global trade tensions. This waning momentum in services creates a stark divergence within the Irish economy, as the manufacturing sector simultaneously recorded its fastest growth in over three years. Further indicating a loss of momentum, the level of outstanding business in the services sector decreased for the first time since the beginning of 2024. A key mitigating factor is the significant easing of price pressures, with input costs rising at the slowest rate in over four years, which could provide some relief on the inflation front. Despite this, business sentiment, while still optimistic, remains fragile and close to post-pandemic lows, signaling considerable uncertainty ahead.

Key Decisions for Investors

• Given the clear divergence between a slowing services sector and accelerating manufacturing, investors should review their sector-specific exposure within Ireland, potentially reducing weightings in service-oriented companies sensitive to international demand.
• The decline in export orders due to weakness in the U.S. and Europe is a key risk factor; monitor upcoming trade data and economic indicators from these key partners, as further deterioration could precede a broader Irish economic slowdown.
• The easing of price pressures in the services sector is a notable disinflationary signal, which could be supportive for Irish fixed-income assets and suggests a less aggressive monetary policy environment.
• Adopt a nuanced view on the Irish economy, as the mixed data warrants caution on broad index exposure while creating potential opportunities in the outperforming manufacturing sector.