Manufacturing sector shrank further in first month of year

IRELAND’S MANUFACTURING sector shrank in the first month of the year, with domestic demand continuing to drag on the index.

The fall was in line with global trends, where poor demand restrained factory output in Asia and most of Europe in January, business surveys showed yesterday, putting pressure on policymakers to shore up growth and counter a spreading malaise.

Locally, it was a poor start to the year as the NCB Manufacturing Purchasing Managers’ Index declined to 48.3 from 48.6 a month earlier, as manufacturing output shrank sharply and new orders were also lower amid economic uncertainty

The decline was the fastest rate in two years, as business conditions continued to deteriorate.

“Operating conditions in the Irish manufacturing sector continued to deteriorate at the start of 2012 as output and new orders both fell at solid rates in January,” NCB said.

Companies were forced to reduce prices, even as input costs continued to climb strongly, with the weakening euro fuelling increased costs.

However, once again export orders continued to support the sector. With export orders registering 50.9 on the index, compared with a decline to 46.8 in overall new orders.

The rise was attributed to the weakness in the domestic market pushing firms to enter new overseas markets.

“2012 is going to be the fifth year in a row in which Irish domestic demand will contract and if GDP is to expand there can be no further decline in the external environment,” NCB chief economist Brian Devine said.

The backlog of work fell for yet another month, and employment was lower in January, with the index falling to 49.5 compared with 50.5 a month earlier.

Meanwhile, the first rise in German manufacturing output in seven months was not enough to offset prolonged contraction in the euro zone’s smaller economies and suggests Europe will not avoid recession.

The Eurozone Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, rose to 48.8 last month from 46.9, revised up from a flash reading but recording its sixth month below the 50 mark that divides growth from contraction.

French manufacturing contracted again, as did Spain’s and Italy’s. Data from Britain was decidedly more upbeat than the figures from continental Europe.

The PMI rose to 52.1 from 49.6, beating expectations for 50.0.

– (Additional reporting: Reuters)