Irish manufacturing drops to record low in July

Irish manufacturing hit a new record low last month as the combination of a strong euro, deteriorating demand and rising costs depressed activity.

The NCB Purchasing Managers' Index dropped to 43.4 in July from 44.7 the previous month to its lowest reading since the survey began in May 1998.

Eunan king, chief economist at NCB Stockbrokers, said economic conditions remained challenging for the manufacturing sector. The strength of the euro and weak demand had resulted in new orders contracting at a record pace last month, he said.  

July was the sixth month out of seven in which the index remained below the 50 mark separating growth from contraction. The four years prior to December 2007 had seen uninterrupted expansion.

New orders were lower last month, with this part of the index declining to an all-time low of 41.8 compared with 43.1 in June. The strength of the euro was impacting on orders from the UK and US, the survey found.  

"Anecdotal evidence suggested that a general deterioration in domestic demand, combined with worsening export conditions, led to the marked contraction of overall new orders," said Markit, which compiles the survey.

Manufacturers were responding to lower new order volumes by cutting jobs, the survey found.

"At 42.8, the seasonally adjusted Employment Index signalled the second-sharpest fall in staffing levels in the survey history," Markit said. New export orders remained weak in July at 46.2, compared with 46.1 in June.

"There were reports that competitiveness in export markets had been damaged by the strength of the euro, while firms also commented on general weakness in export demand, particularly from the UK," Markit said.

The decline in orders and competitiveness was compounded by rising cost inflation with the index measuring this element of manufacturing rising to its highest ever level in July.

"Of the 53 per cent of firms that noted a rise in input costs, many commented on higher oil prices, while others mentioned increased metals costs," Markit said.

"Pressured by substantial input cost inflation, firms continued to increase their prices charged, despite falling new order levels," the survey found.

Today's survey follows a downward revision in economic growth predictions for the Irish economy by the Central Bank yesterday.

In its latest quarterly bulletin the bank revised down its growth forecast to 0.3 per cent compared with the 1.9 per cent predicted in March.

A separate report published yesterday by NCB stockbrokers forecast that the Irish economy will slip into recession this year.