Manufacturing companies suffered a heavy annual drop in activity during March, according to new figures from the Central Statistics Office (CSO).

The latest industrial production data shows that the manufacturing sector produced 5.6 per cent less in March this year than in the same month of 2002.

The shrinkage, which came after two months of expansion, illustrates the underlying weakness of the Irish manufacturing sector, which is currently battling against competitiveness difficulties caused by high domestic inflation and a strengthening euro.

The vulnerability of manufacturing companies has already been highlighted in NCB's Purchasing Managers' Index, which recently registered a seventh successive month of contraction.

The latest CSO figures are likely to include a measure of volatility, however, as the transfer pricing policies of multinationals operating from the Republic work to skew overall trends.

This volatility is also likely to have affected seasonally-adjusted industrial production estimates for March, which point to a 2.3 per cent decline in activity from the preceding month.

The monthly series, which pointed to a progressive decline in activity over the course of 2002, had again recorded expansion in the two preceding months.

On the same measure, production levels are shown to have risen by 6.8 per cent in the first quarter, when compared to the final three months of 2002.