Hopes for manufacturing pick-up

Production levels from Ireland’s manufacturing industries are expected to remain subdued for the rest of the year, but economists are still upbeat about a medium-term pick-up, despite output hitting a two-year low.

Latest industrial production data from the CSO shows that manufacturing output fell by 2.5% on a rolling month-by-month basis in March, but was down by 5.6% year-on-year.

While the so-called ‘traditional’ sector showed a monthly rise in production of 2.6%, the ‘modern’ sector — which comprises a number of hi-tech and chemical/pharmaceutical areas — fell by 4.9%.

The overall 2.5% monthly fall in the index for March marked the second consecutive decline following two straight months of growth.

Yesterday’s CSO data also corrected February’s preliminary stats, revising that month’s fall downwards from 3.2% to 3.7%.

“The recovery in production seen in late 2010 and early 2011 has been all but wiped out. The index is now at its lowest level since Dec 2009. Weak euro area growth over the past two quarters is weighing on industrial production. We expect this slowdown in production to continue in 2012, as euro area growth contracts,” said David McNamara of Davy Stockbrokers.

However, Alan McQuaid, chief economist with Bloxham Stockbrokers, put a slightly more positive note on things. “As regards the overall outlook for the manufacturing sector, over the next 12 months or so, clearly a lot depends on what happens in the world economy. The latest manufacturing PMI (purchasing managers’ index) from earlier this week, wasn’t too encouraging. Growth in the sector almost ground to a halt last month as output fell, but activity stayed ahead of the eurozone average, thanks to new orders and accelerating employment.”

Mr McQuaid added that Ireland is well-placed to reap the long-term benefits of any pick-up in the global economy. “While the omens don’t look particularly good on the manufacturing front at this point in time, Ireland’s focus on relatively recession-hardy exports — such as pharmaceuticals — and its improving competitiveness should help it weather the storm better than most. With domestic demand so weak, it is vital that the manufacturing sector remains healthy and competitive.”