Manufacturing sector in Ireland hit by Brexit vote
Published 03/08/2016 | 02:30
The Brexit vote has hit Ireland's manufacturing sector, with new business stagnating and production slowing for the first time in three years.
Signs of falling demand in the sector comes as the State's biggest business body warned that exporters faced a currency crisis on the back of a weakening in sterling caused by the UK referendum result.
Factory activity here barely remained in growth territory, as the rate of production softened slightly for the first time since May 2013, according to a survey monitoring the health of the sector.
The findings from the so-called Manufacturing PMI (Purchasing Managers' Index) is the clearest evidence yet that the Brexit vote has had an impact on the Irish economy.
Philip O'Sullivan, economist with specialist bank Investec, said the findings were disappointing, but not overly surprising.
"While we draw a modicum of reassurance from the relatively modest declines in both new orders and new export orders, our sense is that conditions in the Irish manufacturing sector are likely to get worse before they get better."
The PMI for the sector uses data compiled from monthly replies to questionnaires sent to around 285 companies. Survey responses reflect the change, if any, in the current month compared with the previous month, based on data collected mid-month.
An overall score is then given, with anything above 50 signalling the sector is growing, while below 50 means it's contracting. They are regarded by market analysts as reliable indicators.
The manufacturing PMI for Ireland dipped from 53 in June, to 50.2 last month, meaning it was just barely in growth mode. Total new business in the sector stagnated, the survey found, ending a three-year sequence of expansion.
A market slowdown and the UK's decision to leave the EU were mentioned as factors reducing new orders in the month, according to the report. New export orders fell for the second time in the past three months. Employment in the sector, however, continued to rise, but the rate of job creation was slower than in June.
It comes as business body Ibec gave a bleak assessment of the impact of the weakening of sterling on Irish exporters.
It warned that food exporters to the UK could be hit with losses of around €700m and thousands of jobs could be put at risk if sterling weakens towards the 90p mark against the euro. It is currently hovering around the 85p mark.
Ibec has said Irish exporters are now in the midst of a currency crisis, arguing the speed of sterling's decline is on a par with the Exchange Rate Mechanism crisis of 1992. Sterling could weaken even further if the Bank of England cuts interest rates tomorrow to boost the UK economy in the wake of the vote.
The fallout from Brexit is weighing heavily on manufacturing in the UK also. The sector shrank at its fastest pace in more than three years in July and business confidence tumbled.
Construction activity also shrank for the second month.