Manufacturing sector deteriorates at fastest pace since Covid

Selling prices decline for first time since late 2020, says AIB

Ireland’s manufacturing sector downturn deepened in May, with conditions deteriorating at a pace not seen since the initial phase of the pandemic in 2020, new AIB research has highlighted.

The bank’s latest purchasing managers’ index (PMI) data for the sector indicates that the sector was “dragged down” last month by falling output and new orders, with purchasing activity declining more sharply than any month since June 2020.

Irish manufacturers reported a notably sharp decline in new orders from abroad. Aside from the early period of the pandemic, May saw the strongest monthly drop-off in exports since April 2009, AIB said.

The main index tumbled to 47.5 in May from 48.6 in April, with any reading below 50 indicating a contraction in activity, the fifth month in the last six in which conditions have worsened.


Business sentiment, meanwhile, remained “historically subdued”, AIB said, although the manufacturing firms surveyed said they were generally optimistic about the prospect of a rebound in output over the next year.

Overall, however, demand conditions continued to worsen in May, with the decline most severe among foreign clients, AIB said. Consequently, manufacturers in the Republic recorded the steepest reduction in post-production inventories since October 2020 as they moved to “mirror quieter demand conditions”.

“The downturn in global manufacturing stems from weak demand, with declining new orders, falling production and a rundown of inventories,” said AIB chief economist Oliver Mangan. But the Irish contraction is part of a global trend this year, he said, with flash manufacturing PMIs for the euro zone, the UK and the US published recently all indicating further deterioration in May.

The flipside is that inflationary pressures, carrying on from April, continued to ease in May, with lower raw materials prices feeding into “the first fall in output prices since September 2020″, Mr Mangan said.

Employment in the manufacturing sector increased for the sixth consecutive month “albeit only marginally”, he said, but there was also a further easing of supply chain pressures and a shortening of delivery times, “aided by the general weakness of demand”.

While subdued, sentiment among the survey respondents was buoyed by hopes that output levels will increase over the next 12 months, “underpinned by hopes for new business gains and a pickup in demand conditions”, AIB said.

Ian Curran

Ian Curran

Ian Curran is a Business reporter with The Irish Times