Irish manufacturing bucks dismal trend across Europe

Irish manufacturing bucked the trend across Europe posting another strong set of numbers for November as exporters saw new orders flood in at the fastest rate in almost four years.

The latest Investec Manufacturing Purchasing Managers' Index indicates activity has now expanded for 18 consecutive months.

The index stood at 56.2 last month, down from 56.6 a month earlier but comfortably above the 50 mark that indicates growth and not far short of the 15-year high of 57.3 in August.

According to firms, higher sales and new product lines contributed to the expansion.

While growth in new orders slowed for the third successive month after August’s peak, the sub-index measuring new export orders jumped to 59.3 from 54.8 in October to mark its highest reading since February 2011.

Another positive was the sub-index for employment which posted a further sharp rise in hiring last month, with more than twice as many firms adding to headcounts than are cutting staffing levels.

Having declined in each of the preceding three months, input prices increased in November. That said, the rate of inflation was relatively modest with panellists pinpointing the recent weakness of the euro against both sterling and the US dollar as a key factor.

“Last month we said that the generally positive trends are particularly welcome in light of the more unsettled global backdrop that we have seen in recent times,” said Investec Ireland chief economist Philip O’Sullivan.

“We see little need to change that narrative on the back of this release, save for noting that the impact of currency moves on a number of the components of the headline PMI serves as a reminder that Irish firms should ensure that they have the appropriate strategies in place to protect themselves from any adverse developments on this front, given the potential for higher volatility in a number of key currency pairs in the near term as we approach events such as the UK general election.”

Separately, euro zone manufacturing growth stalled in November and new orders fell at the fastest pace in 19 months despite heavy price cutting, painting a bleak picture for the coming months.

Also worryingly for policymakers at the European Central Bank, who are struggling to bolster growth and drive up dangerously low inflation, factory activity declined in the bloc’s three biggest economies of Germany, France and Italy.

“The situation in euro area manufacturing is worse than previously thought... There is a risk that renewed rot is spreading across the region from the core,” said Chris Williamson, chief economist at survey compiler Markit.

Markit’s final November manufacturing Purchasing Managers’ Index was 50.1, its lowest reading since June 2013 and down from an earlier flash reading of 50.4 and from 50.6 in October.

That is barely above the 50 mark that separates growth from contraction, and in a sign that there is little prospect of improvement in December a sub-index covering new orders stayed below the break-even line for a third month, coming in at a 19-month low of 48.7.

An output index, which feeds into a composite PMI due on Wednesday that is seen as good growth indicator, fell to 51.2 from October’s 51.5. That was well below the flash estimate of 51.8 and was its second-lowest reading since June 2013. The fall comes despite factories cutting their prices for a third month, and at the steepest rate since mid-2013.

Annual inflation cooled to 0.3 per cent in November, firmly in the ECB’s deflation “danger zone”, while unemployment held at 11.5 per cent for the third month in October. Still, the ECB is not expected to alter its already very loose policy when it meets on Thursday and there is only an even chance it will buy government bonds, according to a Reuters poll last week.

Adding to the dismal global backdrop growth in China’s manufacturing sector also slowed in November, suggesting the world’s second-largest economy is still losing momentum and adding pressure on authorities to ramp up stimulus measures after unexpectedly cutting interest rates last month.

After saying for months that China does not need any big economic stimulus, Beijing surprised financial markets by lowering rates last month to shore up growth. Analysts see more moves in coming months if the economy continues to stumble. “China’s rate cut appears to have failed to improve sentiment, and we see little improvement in activity indicators in November,” ANZ said in a research note.

“In order to maintain growth for the whole year at around 7.5 percent (the official target), we believe that Chinese authorities will intensify easing efforts in December to accelerate growth momentum.”

The official Purchasing Managers’ Index (PMI) eased to an eight-month low of 50.3 last month, the National Bureau of Statistics said, still indicating a modest expansion in activity but below forecasts for 50.6 and October’s 50.8. The official PMI survey, which is biased towards large, state-owned factories, showed that demand for Chinese goods was stronger in China than abroad. New export orders contracted. A similar private survey showed growth at Chinese factories stalled last month.

Additional reporting by Reuters, Bloomberg