Saturday 17 March 2018

Manufacturing sector boosted by rapid rise in new orders

Investec chief economist Philip O’Sullivan
Investec chief economist Philip O’Sullivan
Colm Kelpie

Colm Kelpie

Ireland's manufacturing sector enjoyed another sharp rise in new orders last month.

The rate of expansion remained steep despite easing slightly, with panellists reporting new work from both new and existing clients, according to the latest Purchasing Managers' Index (PMI) for the sector.

Rates of growth in output and employment eased during the month.

Philip O'Sullivan, economist with Investec, which produces the report, said manufacturers remain positive on the outlook, with expectations of further growth in both domestic and international orders.

"Around 49pc of respondents predicted a rise in production in the coming year compared with just 9pc that anticipated lower production levels," Mr O'Sullivan said.

"Following a strong performance by the manufacturing sector in the first half of this year, and the generally improving global backdrop, we also remain upbeat about prospects for the sector over the remainder of the year."

The seasonally adjusted PMI dipped from June's near two-year high of 56 to 54.6 in July. Anything above 50 signals expansion.

New order growth supported a further increase in production at Irish manufacturers, extending the current sequence of rising output to one year.

Levels of outstanding business rose for the third consecutive month as a result of strong new order growth. There were also signs that firms were tapping into new markets, although it was not clear if this was as a result of Brexit.

"A further sharp rise in new orders was recorded in July, with panellists reporting new work from both new and existing clients, although the rate of growth eased slightly," Mr O'Sullivan added.

"New export orders increased for the 11th consecutive month, but at the slowest rate since November last year, and some panellists mentioned having expanded into new markets."

Meanwhile, factories in the Eurozone started the second half with buoyant growth, which although slightly weaker than previously estimated, was broad-based and appears to be sustainable. The latest Eurozone PMI dipped to 56.6 from June's six-year high of 57.4, slightly down from a flash estimate of 56.8.

"Eurozone factories were buzzing with activity again in July," said Chris Williamson, economist at IHS Markit, which produced the data.

n CASE STUDY: Kildare-based DEM Machines, which manufactures industrial weighing equipment and develops industrial software, employs 32 people throughout Ireland and the UK. Its business to the UK suffered a 10pc hit in the aftermath of the Brexit referendum, but has been steadily building since.

"Before we started our UK campaign, our sales into the UK were 12pc in 2012. This figure rose to 40pc just before the Brexit announcement," said Padraig O'Callaghan, who is in marketing and business development.

"Following the Brexit announcement, our sales into the UK dropped by approximately 10-12pc, however, these metrics are slowing improving again as we are seeing 35pc of sales to the UK market.

"We decided to keep our prices the same and took a reduced profit margin in order to stay competitive - it was a case of minifying the damage to our momentum we built up tackling the UK market in previous years."

The company is now recruiting a UK-based management team to monitor and directly manage its operations in that region.

Irish Independent

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