The service sector of the economy shrank in April for the first time since November 2001, according to the latest Purchasing Managers' Services Index from NCB Stockbrokers.
The index came in at 48.6, below the 50 mark which divides growth from contraction.
The report said firms had cut activity levels because of a drop in optimism about the future and a decline in new business. The worst performing sector was transport, travel and tourism.
Firms suggested that the impact of war in Iraq was continuing to depress already weak economic conditions, while there were indications that increased worries about the SARS outbreak had also dampened activity.
Costs for businesses rose sharply in April, according to the report, despite lower oil prices. This was mainly due to higher wage bills. But charges fell for the first time in 18 months as firms cut prices to win new business.
The employment component of the index recorded 48, down from 49.1 in March.
