Business conditions facing Irish manufacturers were described as "solid" in spite of rising input costs, by the latest Purchasing Manager's Index (PMI) for the manufacturing sector.

But growth in manufacturing activity was slower than before and dominated by domestic rather than export demand, while employment fell for the second month in succession, despite increased output.

The overall index for manufacturing activity in Ireland rose in March to 52.6, up from 52.4 in February, on a seasonally-adjusted basis, and has remained above the value of 50 since September 2003. A value below 50 indicates a contraction in activity, while a value above 50 indicates expansion.

New export work fell for the second month in succession, the index suggests. Employment levels also fell for the second month in succession, but the decline in staff was marginal. "The pace of growth remains below rates achieved late last year and employment has fallen further, albeit very slightly. Growth in the economy at large continues to rely on domestic rather than external demand," NCB chief economist Dermot O'Brien said yesterday.

But in a sign that manufacturers may be under increased pressure to raise prices, the input prices index rose to 61.8 from 60.8 in February, while output prices also rose in March. As measured by the Central Statistics Office's most recent wholesale price index, output price inflation gathered pace in February to 3.3 per cent, from 2.7 in January.

Manufacturing data, released yesterday for the euro zone, showed activity growing at its quickest pace in five and a half years. The headline PMI rose to 56.1 in March from 54.5 in February, due largely to rising demand for German exports.

NTC Research, which compiles PMI data, said the latest data raised the chances of a further interest rate rise in the euro zone. "That's great for corporate profitability. It will cause concerns for the European Central Bank," Chris Williamson of NTC Research said.