Irish manufacturing sector slows at fastest rate in six years

Ireland's manufacturing sector slowed last month at the fastest rate in over six years. And sentiment towards activity in the coming 12 months, while still positive, was the lowest in over three years, largely because of Brexit. Across the Euro zone, manufacturing activity contracted for a seventh month.

The August reading of 48.6 in the AIB manufacturing purchasing managers' index represents the fastest pace of contraction since April 2013. It is the third successive month of contraction, with the figure down fractionally from 48.7 in July. A figure below 50 indicates a contracting sector; anything above 50 points to expansion.

“Irish manufacturing activity has been hit by a double whammy of global weakness in the sector and Brexit uncertainty,” AIB chief economist Oliver Mangan said. “It is unlikely to pick up until these headwinds subside.”

However, he added, output could be boosted in the next couple of months if firms start to stockpile ahead of the latest Brexit cliff-edge date of October 31st.

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“Key elements of the August survey all registered declines. Output fell for the second month in a row in response to weaker customer demand. New orders declined for the fourth consecutive month, reflecting Brexit uncertainty,” Mr Mangan said.

“Notably, new export orders fell, with weaker UK orders being flagged in particular, again due to ongoing Brexit uncertainty.

“Lower levels of consumer demand were cited as a reason for declines in both stocks of pre-production inventories and purchases of inputs. On the other hand, weak sales saw stocks of unsold finished goods rise further.”

Global

Mr Mangan said the data showed that the sharp slowdown in global manufacturing activity over the past year is being clearly felt in Ireland too. Brexit uncertainty is an additional negative factor weighing on manufacturing here, he added.

One of the few positives in the survey was the continuing rise in employment, albeit marginal. A number of respondents said they had increased their workforces to prepare for Brexit.

The positive outlook among manufacturers for the next year despite the evidence of the past few months was put down to confidence about increased customer orders, “particularly from abroad, and new product investments”.

Across the Euro zone, manufacturing activity contracted for a seventh month in August as a continued decline in demand sapped optimism, likely strengthening expectations for monetary easing from the European Central Bank next week.

The Euro zone PMI was 47.0, matching an earlier flash reading but well below the 50 level separating growth from contraction. While an improvement on July’s 46.5, that month’s reading was the lowest since December 2012.

Germany’s export-dependent manufacturing sector remained in contraction in August, as weaker demand pushed companies to scale back production and cut jobs.

In France, factory activity returned to growth in August as manufacturers saw output and client demand pick up.

The survey is carried out monthly among a panel of 250 by IHS Markit.