Wednesday 23 January 2019

US tariffs push up manufacturing costs as fears of trade war escalate

Investec’s Philip O’Sullivan
Investec’s Philip O’Sullivan
Ellie Donnelly

Ellie Donnelly

US tariffs are already starting to contribute to higher costs for a number of Irish manufacturers.

There was an acceleration in the rate of growth in input cost inflation in July, according to the latest Manufacturing Purchasers Managers Index (PMI) from specialist bank Investec.

Most panellists to the regular survey behind the research attributed rising costs to higher prices for fuel, oil and plastics.

However, US tariffs were seen by some respondents as driving their costs higher.

Overall, the manufacturing sector in Ireland continued to expand at a brisk pace in July.

The headline PMI of 56.3 in was slightly below June's five-month-high reading of 56.6, but nonetheless it is comfortably above the series average. Any reading over 50 reflects growth.

Investec Ireland chief economist Philip O'Sullivan said that 26pc of respondents had reported an increase of input costs in the past month, with a number of these businesses citing the US tariffs.

"This is something that manufacturers will be monitoring closely over the next number of months," he told the Irish Independent.

Firms responded to higher costs by raising output prices, but this, combined with volume growth, failed to prevent a sixth successive decline in the profitability index.

Meanwhile ,the euro struggled yesterday as fears of an escalation in the trade dispute between the United States and China boosted the dollar and a survey showing subdued eurozone manufacturing growth in July kept investors cautious.

The US administration is threatening a 25pc tariff on $200bn of Chinese imports, to pressure Beijing into making trade concessions, a source familiar with the matter said. China has vowed to retaliate.

Factory growth stuttered across the world in July, heightening concerns about the global economic outlook as an intensifying trade conflict between the United States and China sent shudders through trading partners.

In Ireland, growth in new orders continued at a strong pace, driven by domestic demand, as the rate of increase in new export orders cooled to a three-month low, signalling the second-slowest pace of growth in the past 12 months.

On the back of the positive demand, businesses took on additional staff in July, extending the sequence of above-50 readings for that component of the release to 22 months.

Looking forward, the future output index, which measures business confidence, dipped to an eight-month low, though Irish business on the whole remains optimistic.

"While the international backdrop has become slightly more uncertain in recent times, we think the upbeat stance by manufacturers on the outlook remains warranted," Mr O'Sullivan said.

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