Ireland's Services Sector Shrinks in April Amid Soaring Costs, Geopolitical Tensions

Ireland’s services sector contracted in April for the first time since early 2021, with the AIB Purchasing Managers’ Index (PMI) falling to 49.7 from 50.7 in March, below the 50-point threshold separating expansion from contraction. This downturn was driven by a surge in input cost inflation, reaching its highest level in nearly 3½ years, primarily linked to the US-Israeli war in Iran and broader Middle East geopolitical tensions.

Transport, tourism, and leisure businesses experienced the sharpest contraction in activity and continued to report the highest input cost and price inflation. Output in this subsector has declined in 11 of the past 14 months, exacerbated by reduced tourist visits from Europe and the UK last year. Financial services also saw a decline in activity, its first in 10 months. New business levels across the sector fell sharply due to economic uncertainty and higher costs.

The technology, media, and telecoms subsector, however, rebounded with growth, and business services recorded modest expansion. AIB Chief Economist David McNamara noted that economic uncertainty, higher costs, and geopolitical tensions were key drivers of the downturn. While business sentiment remains positive, it is at a relatively weak level.

Separately, EY Ireland projects the Republic’s economy to grow by 1.8 percent this year and Northern Ireland’s by 0.7 percent. EY warns that prolonged conflict in the Middle East, keeping oil and gas prices high, could hinder activity. It estimates euro zone inflation could reach 2.8 percent this year and assesses a 35 percent chance of recession in the region if oil prices remain above $100 a barrel due to a protracted conflict.