Irish manufacturing activity slumps in face of weaker global demand

Manufacturing activity in the Republic declined for a fourth straight month in June and at the fastest rate in three years as firms scaled back output in the face of falling orders.

Sluggish global demand has triggered a slump in manufacturing across Europe and the US.

The latest AIB purchasing managers’ index (PMI) survey said downturns in new orders and output among companies here were both sustained in June “with the rate of contraction in the latter the sharpest since February 2021”.

Firms responded by cutting back their buying activity at the steepest pace for three years while employment numbers were down for the first time in seven months “as firms were increasingly reluctant to replace voluntary leavers”, it said.

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AIB, however, noted, that cost pressures, which had whipped up in the wake of the pandemic and as a result of higher energy prices, continued to ease with the sharpest fall in selling prices since February 2016.

The headline index fell to 47.3 in June, from 47.5 previously. Scores below 50 signify contraction.

The contraction in Irish manufacturing activity is in line with the trend in most other economies amid a global downturn in the sector, AIB said, noting the flash June manufacturing PMIs for the euro zone, UK and US slipped further to 43.6, 46.2 and 46.3, respectively.

In its latest quarterly bulletin the Economic and Social Research Institute (ESRI) slashed its growth forecast for the Irish economy on the back of a significant slowdown in exports by the multinational-dominated pharma sector, the largest element of manufacturing here. It now expects the economy to grow by just 0.1 per cent in gross domestic product (GDP) terms this year, down from a previous forecast of 5.5 per cent.

“Irish manufacturing continued to be hampered by subdued demand, including in overseas markets. This was reflected in new orders falling for a fourth month in a row, with export orders contracting for a 13th successive month,” AIB chief economist Oliver Mangan said.

“The weakness in demand, meant that production continued to be scaled back, and is now at its lowest level since early 2021. Amid the lower level of production, firms continued to scale back their purchases of inputs, with June seeing the sharpest pace of reduction in three years. “Against the backdrop of weaker activity levels, employment decreased for the first time in seven months, with the rate of decline the sharpest in nearly three years.”

Mr Mangan said weaker demand dynamics, however, resulted in a further marked easing in inflationary pressures. “Input prices fell for the third consecutive month, driven by falls in raw material and energy prices. A combination of reduced inputs costs and increased competition saw output prices decrease again in June.”