Industrial output recovers slightly

Industrial production and turnover for October has recovered marginally after a large drop off in output in September.

The Central Statistics Office has reported that there was a 3.1% increase in industrial production between September and October. In September the output had fallen by nearly 14% due mainly to a huge decline in activity in the pharmaceutical sector.

Despite the month-on-month increase in industrial output when compared to October last year the index is down nearly 18%.

Merrion Stockbrokers economist Alan McQuaid said a recovery in the “modern” sector indicated that fears over the so-called patent cliff had been over-hyped.

“The ‘modern’ sector posted a monthly increase of 7.0% in October but was down 20.8% in the year following an annual drop of 18.1% in September. After posting a monthly decrease of 36.9% in September basic pharmaceutical products and preparations rebounded with a rise of 14.3% in October, which may suggest the concerns over the patents expiry issue was overdone. Still, it is too early to know for sure. In the first 10 months of 2012, output from the ‘modern’ sector was 0.5% lower on average than in January-October 2011,” he said.

Davy’s chief economist, Colm MacCoile, agreed that the impact of the patents cliff that had appeared in September’s figures had been due to fluctuations. He suggests that the patent cliff will have a more gradual effect on returns.

“As pharmaceuticals are highly import-intensive, declines in services imports — specifically royalties and licence fees — will limit the impact on GDP. Wild speculation that pharma export revenue worth 30% of GDP will collapse is overstated, with the true value-added contribution to GDP closer to 10%,” he said.

The CSO reported that the traditional sector, which include all other industries other than IT, pharmaceutical and medical devices, decreased by 0.8% in the month and is down 4.5% in the year, more than likely due to the decline in the global economy.

Mr McQuaid believe that Ireland remains well positioned to capitalise on any upswing in the global economy despite shrinking this year for the first time in three years.

“However, based on the figures for the first 10 months of the year, it now looks like the Irish manufacturing sector will post an overall decrease in output in 2012, following two years in a row of growth,” he said