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Manufacturing sector rebounds as orders flood to defy euro gloom


Dairymaster technicians put the finishing touches to the latest bulk tank manufactured at the firm's plant in Causeway, Co Kerry

Dairymaster technicians put the finishing touches to the latest bulk tank manufactured at the firm's plant in Causeway, Co Kerry

Dairymaster technicians put the finishing touches to the latest bulk tank manufactured at the firm's plant in Causeway, Co Kerry

The country's long-suffering manufacturing sector expanded at the fastest pace since the last century in August as the economy defied slumps elsewhere in Europe and further afield.

The activity in the Irish manufacturing sector was driven by a surge in new orders and represented the 15th month of growth in a row.

Manufacturing accounts for about a quarter of gross domestic product here and is the one of the biggest private sector employers.

"This is a strong outcome, particularly when framed against the backdrop of weakening signs from some euro zone trading partners of late," said Investec economist Philip O'Sullivan.

"With manufacturing firms in Ireland stepping up their purchasing and hiring activity, it is clear that they are optimistic of a strong finish to the year," he added.

Ireland is significantly bucking the trend in the Eurozone's stalled recovery, with evidence building from companies to consumers that the economy is set to grow faster than most on the continent this year and beyond.

The economy may get back to the size it was in 2006 by the end of the year but will still be off the 2007 pre-crisis high.

Companies such as Kingspan and Grafton have recently reported rising profits in their Irish divisions, while the country's three biggest banks have returned to profit. Grafton saw a 15pc rise in its Irish merchanting business as it almost doubled its profits in the first six months of the year.

"The bottom line is that the Irish economic recovery is gathering pace," said Goodbody Stockbrokers chief economist Dermot O'Leary. "We now believe Ireland will remain one of the fastest growing economies in the euro area over the next three years."

As a result, Mr O'Leary and 11 other economists surveyed by Reuters last week believe Finance Minister Michael Noonan will only have to implement a fraction of the planned final round of spending cuts and tax hikes in next month's budget for 2015, another potential boost to the long-suffering consumer.

The domestic economy appears to be have been protected from the general slowdown in the Eurozone economy because so much of our trade is with the US and UK, which have held up better than many other western economies. It is not clear how long that trend can last.

"We began to be a little more confident about the Irish economy this time last year. If anything we probably underestimated how positive the economy would be," FBD chief executive Andrew Langford told Reuters last week.

"The caveat to that is that the Irish economy is so open, a slowdown in the European economy could have an impact."

The Investec Manufacturing Purchasing Managers' Index rose to 57.3 in August from 55.4 in July, well above the 50 line dividing expansion from contraction.

The PMI sub-index measuring new orders among Irish manufacturing firms rose 60.4 in August from 57.1 in July.

Output prices, work backlogs and input prices all retreated.

The employment index showed that the manufacturing sector has increased headcounts in each of the past 15 months.

Once again, we find ourself on the horns of a dilemma

IRELAND'S manufacturing sector has been going gang-busters for at least a year so yesterday's figures for August are not too much of a surprise. Still, they highlight once again that we are out of step with our partners elsewhere in the Eurozone. That is not good news and could become dangerous in the years ahead.

We are not in tune with Europe for two reasons. The first is that we are in recovery mode following a long and disastrous recession. It is relatively easy for our manufacturing sector to expand after years of decline. That probably explains why Spain also reported good figures yesterday despite the disappointments elsewhere in Europe.

A second reason is that Ireland's economy remains focused on Britain and the US to a degree not seen elsewhere in the Eurozone. North America accounts for around 22pc of Ireland's goods exports, with the United States taking almost 10pc of the fast-growing services exports. Britain accounts for about 20pc of services and 14pc of goods exports. We are not immune to what happens inside the Eurozone but we are less exposed than any other member.

Right now, that is good news but it leaves us vulnerable to making the same mistakes we made in the past. The terrible figures from the rest of the Eurozone encouraged the markets to start betting on some kind of monetary easing when the European Central Bank meets on Thursday.

That could mean that interest rates which are already inappropriate for a rapidly expanding economy become completely inappropriate in the months and years ahead.

We've been here before and we know what it feels like.

Rapidly rising property prices, despite having one of the lowest population densities in the Europe; wage hikes for public sector workers without anything in return; something for everybody in the audience with cuts in income tax in the Budget.

Yesterday's figures highlight once again that governments and finance ministers face fresh challenges almost the second after they have solved the last problem. Sometimes, even before the last problem has been fully solved.

Thomas Molloy, Group Business Editor

Irish Independent