Thursday 19 September 2019

Orders sagging as Brexit doubts hit the economy

AIB’s chief economist Oliver Mangan said the threat of a hard Brexit is hitting Ireland just as a global manufacturing slowdown takes hold. Stock image
AIB’s chief economist Oliver Mangan said the threat of a hard Brexit is hitting Ireland just as a global manufacturing slowdown takes hold. Stock image
Donal O'Donovan

Donal O'Donovan

Business confidence has dropped to its lowest in more than three years and it has fed into weaker orders, lower exports and flat-lining jobs growth, the latest purchasing managers index (PMI) shows.

The AIB Ireland Manufacturing PMI is a closely watched economic indicator because it gives near real-time insights based on a regular survey of hundreds of business managers.

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Those responses are rolled into a single index that shows growth and contraction based on a simple scale where numbers above 50 indicate expansion and numbers below show contraction.

AIB's chief economist Oliver Mangan said the threat of a hard Brexit is hitting Ireland just as a global manufacturing slowdown takes hold.

"The sharp slowdown in global manufacturing activity over the past year is being clearly felt in Ireland. Brexit uncertainty is an additional negative factor weighing on manufacturing here," he said.

The latest survey for August shows manufacturing conditions deteriorated for the third month running and at the fastest pace in almost six-and-a-half years during the month. The index posted 48.6 in August, down from 48.7 in July. Until this summer the index had charted continuous expansion since 2013.

Jobs numbers have held up so far with growth, albeit marginal and possibly reflecting some extra hiring for Brexit preparations.

August data shows declines in manufacturing output, in overall new business and export sales. Manufacturers responded by decreasing their own purchasing activity at the fastest rate since September 2011, with likely knock-on effects in cooling the wider economy.

The latest domestic data tallies with a research paper published on Friday by the Bank of England about conditions in the UK.

It showed Brexit has cut productivity among UK companies by between 2pc and 5pc since the June 2016 vote to leave the European Union.

Most of the shortfall reflects a drop in productivity within businesses as senior managers commit several hours per week to planning for Brexit, the researchers said.

Here, with the October 31 deadline for the UK to leave the EU increasingly looking like it will happen without a withdrawal agreement, business sentiment towards activity in the coming 12 months was the lowest in more than three years.

That matters, because any indication of businesses pulling in their horns can become self-fulfilling, prompting others to delay or reduce orders.

In the latest PMI survey, panellists attributed the fall in total new orders to ongoing Brexit uncertainty which had negatively affected customer demand.

Weaker orders from the UK, stemming from ongoing Brexit uncertainty, was the principal factor behind reduced export sales.

Irish Independent

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