Global headwinds shake Irish factory growth outlook

Irish manufacturing continued to grow last month, but the pace of expansion was the slowest for two years — raising fears about the the outlook for expansion.

Global headwinds shake Irish factory growth outlook

Other surveys by purchasing managers across the eurozone showed a worse picture as output from the region’s factories expanded at their weakest level in February for a year.

Markit’s Purchasing Managers’ Index (PMI) will make gloomy reading for the ECB, coming little more than a week before its March 10 policy setting meeting.

“Concerns are growing that the region is facing yet another year of sluggish growth in 2016, or even another downturn.

"Lacklustre domestic demand is being compounded by a worsening global picture,” said Chris Williamson, Markit’s chief economist.

Concern over the pace of the economic growth in China has dominated stock markets since last summer.

Together with fears about the oil slump pumping up corporate debt and renewed concerns about the health of Europe’s banks, stock markets have taken a drubbing in the early part of the year.

The PMI for China showed its factories shed jobs at the fastest rate in seven years last month, as activity shrank to five-month lows, raising doubts about the Chinese government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.

Back home, Irish factories reported an overall PMI reading of 52.9 — down from January’s 54.3, but recording the slowest expansion since 2014.

Subindices in Investec’s PMI survey showed that new orders were at their weakest level since November 2013, while new export orders grew at their slowest pace since February 2014.

On those export orders, the survey showed a mixed picture as some managers said demand had increased from the UK and the US — despite the unwinding of the favourable euro exchange rate in recent weeks.

“The latest Investec Manufacturing PMI Ireland report suggests that the global headwinds may be starting to weigh on the manufacturing sector here,” said Philip O’Sullivan, chief economist at Investec Ireland.

“We suspect that at least a part of this relates to recent euro strengthening, although we should note that some respondents cited the US and UK as the main source of new export orders.”

Mr O’Sullivan said: “We suspect, therefore, that some of the index changes noted above are connected to the more troubled global backdrop. With that being said, on balance we expect that the sector will record another year of growth in 2016.”

Meanwhile, growth in the private sector in the UK — Ireland’s key exporting market — remained subdued last month after falling to its slowest rate in nearly three years in January, according to the Confederation of British Industry.

“With global risks increasing this year following the volatility seen in financial markets, businesses will be keeping a close eye on any possible impact on domestic activity,” said Rain Newton-Smith, the CBI’s director of economics.

Cathal Mac Coille, chief economist at Davy Stockbrokers, said CSO figures showing a modest fall in the jobless rate, to 8.8% last month from 8.9% in January, reflected the growing number of people in the labour force and a slowing level of migration.

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