Wednesday 22 November 2017

Drop in output casts doubt over recovery


Donal O'Donovan

Donal O'Donovan

IRISH manufacturers suffered a surprise drop in output in June, casting a shadow over the hoped for export-led recovery.

The latest Purchasing Managers Index (PMI) shows Irish manufacturing output fell in June for the first time in 16 months.

New orders were down for the first time in nine months.

There was bad news on the jobs front too, with managers reporting a decline in employee numbers for the second month in a row in June.

Manufacturers recorded net gains in the numbers employed for the first four months of the year before recording falls in May and now June.

At the European level the data again shows a two-speed recovery.

Factories in Germany and France continued to do well in June but Italy, Spain and Ireland went into decline.

The UK grew, but at the slowest pace in almost two years.

"The fall is a surprise and a concern but a reading for one month is too early to talk about as a trend," said Brian Devine, chief economist at NCB Stockbrokers.

He said investment sentiment in June may have been shaken by the concerns over a possible Greek government default.

In Ireland, the overall PMI index fell to 49.8 in June, from 51.8 the previous month.

The PMI measures output on a scale either side of 50. Decreases in activity are recorded from 50 down and increases from 50 up.

The new data is particularly worrying because manufacturing, particularly export oriented manufacturing, has been the only bright spot in the economy and is crucial to the government strategy to break free of the EU-IMF bailout.

New export orders did expand, although even there the pace slowed sharply and this is especially worrying as Ireland tries to relaunch the economy on the back of international sales.

Ireland was one of the few eurozone countries to see a decline in output in May. Across the eurozone the PMI dropped to 52 from 54.6 in May.

It's the lowest reading since December 2009, but shows a fall in the rate of expansion rather than a fall in output.

The relative strength of the euro area compared to the UK caused the euro to strengthen against sterling yesterday -- rising to as high as 90.84 pence.

That's bad news for Irish companies selling into the UK, lowering the value of sterling sales while costs are fixed in euro. The euro is set to strengthen further next week.

Irish Independent

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