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Output falls in second quarter in new blow to economy

THE economy has been dealt a further blow with the release yesterday of data showing that the country's manufacturing sector contracted last month for the first time since February. New orders dried up and more jobs were shed.

The NCB Purchasing Managers' Index (PMI) fell to 48.4 in September from 51.1 in August. Any reading over 50 indicates that the sector is growing. Below 50 means a contraction in production levels.

Ireland has now joined Spain and Greece as eurozone countries whose manufacturing sectors contracted last month.

Companies that take part in the survey here revealed that they were cutting jobs last month at the fastest rate since November of last year. September marked the fourth month in a row that manufacturing employers have reduced staff.

"Irish GDP (gross domestic product), after expanding in the first quarter on the back of impressive manufacturing output, contracted once again in the second quarter," confirmed Brian Devine, an economist at NCB Stockbrokers.

He noted that the manufacturing sector slowed even further in the third quarter of the year.

The latest trend in manufacturing output will be worrying for the Government, especially as the rate of new export-orientated business for surveyed Irish firms declined for the first time since October last year.

The Government has been pinning a large portion of its hopes for economic recovery on an improvement in exports as it faces the cost of bailing out the country's banks and dealing with spikes in social welfare payments.


Companies also faced increased input costs last month, with higher commodity prices blamed for much of the rises. Manufacturers were also unable to pass on those higher costs to customers because of the competitive environment.

Manufacturers also reduced their stocks of finished goods during September and post-production stocks have declined at the surveyed companies every month since May 2008, just as the financial crisis was coming to a head.

The decline in manufacturing output in Ireland was mirrored in the UK. The PMI there dipped to 53.4 in September from 53.7 in August. While that figure still shows an expansion, the rate of expansion is now at its lowest in 10 months.

UK companies also reported that their export orders had fallen for the first time in more than a year.

Within the eurozone, the PMI compiled by research firm Markit fell to 53.7 from 55.1 in August, representing an eight-month low.

In France, the index rose to 56 from 55.1, but it declined in Germany from 58.2 to 55.1.

Irish Independent