Why Irish manufacturing is bucking euro zone trend?

Irish manufacturing activity is significantly bucking the euro zone trend, expanding at its fastest rate in 15 years in August, against a backdrop of rising orders.

While factory activity in Europe and Asia cooled in August, as new orders dwindled in the face of escalating tensions in Ukraine and a patchy recovery in China, Irish manufacturing expanded at the fastest rate since 1999.

Investec’s monthly Purchasing Managers’ Index (PMI), an indicator designed to provide a single-figure measure of the health of the manufacturing industry, posted 57.3 in August, up from 55.4 in July, a marked improvement in Irish manufacturing activity.

Ireland’s manufacturing sector growth contrasts with the contractions or slowdowns seen in Britain, France, Germany and Italy, a distinction economists put down to strong recovery in Ireland’s main export markets.

The export sector has kicked back into gear just as others are beginning to struggle, to a certain extent reflecting Ireland’s commercial links with non-euro zone countries where economies are doing better.

North America accounts for about 22 per cent of Ireland’s goods exports, with the United States taking almost 10 per cent of the fast growing services exports. Britain accounts for about 20 per cent of services and 14 per cent of goods exports.

“We do a lot of trade with the UK and US and both those economies are doing well,” Merrion economist Alan McQuaid said.

“Sterling has also strengthened which is good for Irish exports, as it means they are more competitive,” he added.

Mr McQuaid also pointed to recent data from the European Commission, which shows Ireland has had a competitiveness boost through a reduction in unit labour costs, with a 20 per cent relative improvement forecast against the euro zone average.

Employment in the Irish manufacturing sector has now risen in each of the past 15 months. August saw the rate of job creation improve to its fastest pace in three months as firms responded to increasing demand.

Investec Ireland chief economist Philip O'Sullivan said new product lines and improving demand from both export and domestic markets helped the new orders component rise to its highest level in almost 15 years.

He said orders were boosted by increasing demand from the UK, US and Asian markets rather than the euro zone.

“Where exports are concerned, we are closer to Boston than Berlin,” he said.

Davy economist David McNamara said Britain has been a huge source of demand for Irish exports. “The UK has done very well over the last 18 months. That is feeding into rising demand for Irish goods,” he said. – Additional reporting Reuters