Friday 20 April 2018

Manufacturing sector still growing but rate slows to eight-month low

Philip O'Sullivan, Investec
Philip O'Sullivan, Investec
Colm Kelpie

Colm Kelpie

Manufacturing growth in Ireland eased to an eight-month low last month, a survey shows.

Production rose for the 20th month in January, but the pace of that expansion eased with weaknesses in the global economy being blamed, according to the latest Purchasing Managers' Index for the sector.

Both Eurozone and UK manufacturing showed signs of modest growth.

Philip O'Sullivan, economist with specialist bank Investec, said the rate of expansion in the Irish sector remained sharp, despite the slowdown.

"Last month we noted that the deteriorating global backdrop was a concern for the sector heading in to the New Year and this is likely to have been a factor behind the moderation in a number of the indices," Mr O'Sullivan said.

"With that being said, the report shows the sector remains in growth mode."

Both output and new orders rose in January, but at a slower pace than in December.

Falling oil prices led to a solid reduction in input costs, with firms passing these declines on to customers by way of lower output prices.

The seasonally adjusted PMI for January posted 55.1, down from 56.9 in December and the lowest reading recorded since last May.

Anything above 50 signals expansion.

Overall, and despite the slowdown, new business continued to increase at a sharp pace amid reports of rising client demand.

A further rise in new export orders was also recorded, with the UK a particular source of business.

Britain's manufacturing sector grew slightly faster in January thanks in part to a modest recovery in export orders and trimmed prices as raw material costs fell at their quickest rate since May 2009.

The index rose to 53 from an upwardly revised 52.7 in December.

Despite expanding last year at the fastest annual pace since 2007, Britain's economy grew more slowly than expected in the final three months of the year.

Rob Dobson, economist with financial information firm Markit, said UK manufacturers reported a welcome upturn in growth of output and orders at the start of the year.

"The rate of expansion remains muted, however, with output rising at a quarterly pace of around 0.2pc in January, barely improving on the 0.1pc registered in the final quarter of last year," he said.

"At this rate, the sector will provide little meaningful boost to the economy in the first quarter."

Eurozone manufacturing grew slightly last month as companies kept slashing prices, but a weakening Euro did little to help drive new orders from abroad.

Chris Williamson, who also works as an economist with Markit, said Eurozone manufacturing showed signs of "pulling out of the doldrums". But he said the rate of expansion - at 51 - remained "meagre".

"The ECB's bazooka of full scale quantitative easing should boost the Euro area economy via improved business and consumer confidence and the weakening of the Euro," he said.

"The currency's fall should benefit exporting manufacturers in particular over the coming months."

But he also warned that political instability sparked by Greece could also have a detrimental effect.

The Euro has fallen more than 6pc so far this year, which will make the bloc's goods cheaper to buyers from outside.

In Germany, Europe's biggest economy, manufacturing was slower than had been expected.

In France - the Eurozone's second biggest economy - activity shrank for the ninth month.

Irish Independent

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