Irish manufacturing output falls as input costs soar

Job creation and a rise in inventories prevent outright contraction in sector, according to AIB’s latest PMI

Irish manufacturing output and new orders fell for the first time in 16 months in June, as the sector grappled with steep input inflationary pressures and supply-chain issues, according to AIB. However, a key gauge of activity across manufacturing firms avoided outright contraction during the month, with the help of a marked job creation and a rise in inventories.

AIB Ireland Manufacturing Purchasing Managers’ Index (PMI) fell to 53.1 in June from 56.4 in May, representing the lowest reading since February 2021. A figure above 50 suggests that overall activity is continuing to expand. A spokesman for the bank said he could not give individual readings for the sub-components of the index.

“There are clear signs that the slowdown in global manufacturing activity is extending to Ireland,” said Oliver Mangan, AIB’s chief economist.

“The fall was in line with the trend seen in other economies; the flash June indices fell to 52.0 and 53.4 in the euro zone and UK, respectively, with the US index declining to 52.4.”

Within the decline in new orders was a “particularly steep fall” in export orders, AIB said.

As with total new business, price pressure was the main factor acting to dampen international demand, according to survey respondents. General euro zone inflation was running at 8.1 per cent in May, at a time when consumer prices were up 6.3 per cent in the US and soaring at a rate of 9.1 per cent in the UK.

Manufacturers responded to a decline in new orders by scaling back production midway through the year, AIB said. Production was down in the consumer and intermediate goods sectors, but rose at investment goods producers.

Firms noted ongoing stock shortages at suppliers because of supply-chain disruptions, a global issue that initially stemmed from an uneven reopening of economies following the worst of the Covid-19 pandemic, which has been stoked further by the effect of the Ukraine war.

“In terms of the 12-month outlook for activity, sentiment remained positive and has been stable for the past three months,” AIB said. “However, some firms expressed concerns about the impact of rising prices on consumer demand.”

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times