Oil price hike hits manufacturing growth

Higher oil prices and weaker export demand weighed on growth in the manufacturing sector last month, according to the latest …

Higher oil prices and weaker export demand weighed on growth in the manufacturing sector last month, according to the latest NCB Purchasing Managers' Index (PMI).

The research, published yesterday, shows that while activity levels picked up among manufacturing companies last month, the pace of growth was the slowest in more than a year.

NCB's senior economist, Mr Eunan King, acknowledged that that the index pointed towards more sluggish growth.

"This would appear to have been mainly because of weaker export orders," said Mr King.

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NCB said a number of companies had reported weaker demand from "key export markets" such as the US and Japan.

Firms also cited rising competition from low-cost producers in the Far East and cheaper imports from Eastern Europe as problems.

Surveyed firms said their input costs rose faster in October than in any month since May, with stronger oil and steel prices causing difficulties for many.

NCB concludes that that manufacturers' margins must be under pressure, since the prices they charge have not been rising in line with costs.

Mr King said he was encouraged, however, by indications that employment continued to grow in the sector last month.

The employment segment of the index posted a reading of 51.8 in October, which was the fifth highest jobs reading recorded since the PMI was first measured in 2001. A reading above 50 signals expansion.

The overall Irish index produced a reading of 51.4 for October, down from 52.6 in the previous month. October's result indicated the lowest growth since September 2003.

The pace of growth has now contracted for three months in a row as manufacturing companies have faced up to higher costs and fierce international competition.

A similar picture emerged in the wider euro-zone PMI, also released yesterday.

Growth in the euro-zone index slipped back for the third consecutive month, with commentators again blaming rising oil prices for much of the result. The Reuters Euro-zone Purchasing Managers' Index fell from 53.1 in September to 52.4 in October.

"Primarily we suspect this is an oil price-induced global downturn which is hitting export growth," said Mr Chris Williamson, chief economist at NTC Research, which compiles the data for Reuters.

Commentators also pointed to slowing demand for euro-zone goods from China and the stronger euro as reasons for the weaker growth.

The strength of the euro makes goods produced in the euro zone more expensive for buyers using other currencies and thus eats into demand.

The euro zone and Irish results were in contrast to the British PMI, which showed that Britain's manufacturing sector grew at its fastest rate in three months in October, even though company costs rose faster than at any point in nearly a decade.

The Chartered Institute of Purchasing and Supply/Reuters purchasing managers index rose to 53.0, well above the 52.3 forecast by analysts, from an upward revised 52.3 in September.

Additional reporting: Reuters

Úna McCaffrey

Úna McCaffrey

Úna McCaffrey is an Assistant Business Editor at The Irish Times