Manufacturing sector expands as sentiment improves

The Irish manufacturing sector returned to expansion mode in February, with businesses reporting the first rise in new orders since May despite a further decline in global demand for Irish-made products, according to AIB.

After snapping a two-month losing streak in January, the bank’s latest purchasing managers’ index (PMI) data for the sector indicates that inflationary pressures continued to soften in February while output volumes stabilised and workforce numbers grew strongly.

The main index rose to 51.3 in February from 50.1 in January with any reading above 50 indicating an expansion in activity. In January the headline index rose above 50 for the first time since October, momentum that Irish manufacturers have carried forward into February, the latest data suggests.

Oliver Mangan, chief economist at AIB, said: “A key factor behind the improvement in Irish manufacturing was the first rise in new orders since last May, albeit a modest one and amid continuing weakness in exports orders. Output also stabilised, having contracted in eight of the previous nine months. Increasing order books helped employment expand for a third consecutive month and at the quickest pace since last June.”

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The bank said that the rise in orders was driven by “a relative strengthening in demand conditions” domestically despite a further deterioration of international conditions.

Foreign demand for Irish manufactured goods slipped again February, AIB said, and at the sharpest pace since May 2020 against a backdrop of deteriorating global economic conditions. In contrast, Mr Mangan said the flash PMI manufacturing estimates for the euro zone, US and UK remained in contraction territory in February, “pointing to ongoing declines in manufacturing activity in those economies”.

Pricing pressures “came further off the boil” in February with both input and output prices cooling to their slowest rate of increase in two years, AIB said.

Despite this, prices still rose at paces above their historical averages while “anecdotal evidence suggested that higher prices across a broad range of inputs continued to be partly passed on to clients in the form of higher selling prices”.

Business also reported that they had adjusted their input buying in line with the lull in business conditions over recent months, with purchasing activity declining for the seventh time in eight months and at the fastest pace since November.

Meanwhile, manufacturers are becoming “increasingly upbeat” about the outlook for the year ahead, Mr Mangan said, with sentiment about the next 12 months climbing to its highest level in the past year.