Friday 23 August 2019

Irish factory slowdown worst since Brexit vote

Fears as stockpiling boost ebbs

Stepping down: British Prime Minister Theresa May's departure means more Brexit uncertainty. Photo: REUTERS/Simon Dawson
Stepping down: British Prime Minister Theresa May's departure means more Brexit uncertainty. Photo: REUTERS/Simon Dawson
Donal O'Donovan

Donal O'Donovan

Manufacturing output in Ireland shrank in May for the first time since the Brexit referendum in 2016, feeding into a slowdown in jobs growth.

The results of AIB's Purchasing Managers Index (PMI) for the manufacturing sector in May partly reflect a concerted effort by factories to reduce stocks of finished goods built up in the run-up to an anticipated potential Brexit at the end of March.

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New orders also fell at the fastest pace in six years - meaning a slowdown could become more sustained.

Even so, just over half of firms said they were confident output will be higher in 12 months than it was in May.

In fact, as the threat of an immediate Brexit receded last month, sentiment among Irish manufacturers improved to its most positive since the start of the year. "May marked the end of the Brexit-stockpiling boost to the Irish manufacturing sector, with the PMI survey's stocks indices either posting declines or markedly weaker rises," said AIB chief economist Oliver Mangan.

The Brexit stockpiling effect may have shielded Ireland earlier in the year from what he called a marked slowdown in manufacturing activity, globally. "The AIB manufacturing PMI for May showed a further loss of momentum in the sector as the boost to activity from Brexit stockpiling earlier in the year continued to unwind," Mr Mangan said.

The earlier surge in orders and output was driven by manufacturers rushing to beat the threat of disruption from a hard Brexit.

It appears to have played itself out, at least for now, while the threat of a global trade war has ratcheted up.

The UK is now due to exit the EU on October 31, but the chances of further delay are high and the political situation is unpredictable as Prime Minister Theresa May steps down.

Irish managers have continued to stockpile raw materials to guard against any Brexit-related disruption to supply chains. A recovery in sentiment helped keep the PMI index in positive territory - just - with a reading of 50.4 in May. The index is measured on a scale where slipping below 50 is a signal of decline.

In the UK, the manufacturing sector also shrank in May, again for the first time since the aftermath of the Brexit referendum.

IHS Markit's manufacturing PMI dropped to 49.4 from 53.1 in April as factories unwound Brexit preparations when the departure date was pushed back. The reading was significantly weaker than had been expected by economists.

"The current manufacturing downturn may have further to run and will have negative ramifications for growth in the broader economy in the months ahead," said Rob Dobson, director at IHS Markit.

Brexit uncertainty, global trade tensions and the "sharp slowdown in the autos sector" all put a brake on the sector, he said.

Irish Independent

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