Manufacturing activity contracts as demand slows in euro zone states

IRISH MANUFACTURING activity contracted last month as both output and new orders fell foul of the deteriorating economic climate across Europe.

The NCB Purchasing Managers’ Index (PMI) for November, which measures changes in manufacturing activity levels across hundreds of Irish firms, fell to 48.5 from 50.1 in October (a reading below 50 equates to a contraction in activity).

Ireland was the only euro zone economy not to report a fall in manufacturing activity in October.

However, November’s survey showed that manufacturing output fell modestly during the month on the back of what firms described as “fragile client confidence”. There was also a marginal reduction in new orders at Irish manufacturing firms. New business in the sector has now decreased in five of the past six months.

The sub-index of input prices, which was driven up by higher oil and raw material prices earlier this year, rose at its slowest rate for 22 months as weak demand for inputs led to reduced pricing power at suppliers.

NCB chief economist Brian Devine said the fact that new export orders continued to remain weak was not surprising given the euro area was Irelands biggest trading partner.

“The fact that the US economy continues to perform better than expected is a counterbalance and likely explains Ireland’s better performance relative to other euro area economies.”

The euro zone’s manufacturing sector as a whole contracted at its fastest pace in two years last month, pushing factories to reduce their labour force, as a downturn in the periphery took hold in the core.

The euro area-wide survey, also published yesterday, comes hot on the heels of a slew of downbeat data as the 17-nation euro zone’s policymakers struggle to deal with a raging debt crisis that has threatened to bring the common currency crashing down.

The Markit euro zone manufacturing purchasing managers’ index fell to 46.4 in November, its lowest level since July 2009, down from October’s 47.1.

Data from Germany, Europe’s backbone, showed its manufacturing sector contracted at its fastest pace in over two years while in neighbouring France the index sank to its lowest reading since June 2009.

China’s official PMI yesterday showed factory activity shrank in November for the first time in nearly three years. – (Additional reporting by Reuters)