Irish manufacturing output contracted for the second month in a row and the pace of decline quickened, according to the latest survey of the health of Irish factories.
The authoritative AIB Purchasing Managers’ Index provides further hard evidence that the fears of a no-deal Brexit following the election of Boris Johnson as British prime minister is weighing further on Irish factories amid the global trade wars unleashed by US President Donald Trump.
The survey found that Irish manufacturing contracted in July at the sharpest pace for over six years and “provides further evidence that the significant slowdown in global manufacturing is impacting activity in the Irish economy,” said the bank’s chief economist, Oliver Mangan.
The decline was “quite broad-based”, with indicators of output down and new orders showing a further decline “reflecting Brexit uncertainty”, even though manufacturing continued to hire, according to the survey.
PMI surveys across the world are closely watched because they have a good record of signalling potential looming economic slowdowns at an early stage.
The Irish survey covers the many multinationals based in the country — which reflects conditions in the world economy — as well as Irish-owned firms, which reflect their concerns about the effects of Brexit on their sales into, and supply chains from, Britain.
“Anecdotal evidence indicated that demand conditions deteriorated in both domestic and foreign markets during July. Inflows of total new orders declined markedly, amid reports of Brexit uncertainty negatively affecting customer demand,” the survey reported.
Its headline PMI reading fell to 48.7 in July from 49.8 in June. Any reading below 50 signals a contraction in the manufacturing sector.
The Central Bank has warned about the huge effects on Ireland if Britain crashes out of the EU at Halloween. Senior economists and business groups warned the renewed slump in sterling against the euro since last week’s election of Mr Johnson is already weighing on Irish firms. Sterling steadied on Wednesday, but continued to trade at around 91 pence.
Consultancy firm Capital Economics in London warned that sterling will likely face more trouble after its recent sharp falls.
“But this masks the fact that the currency’s valuation still does not look particularly low on any of the usual fundamental measures. That means it is hard to make a very positive case for the currency in the medium to long term, whatever happens on the Brexit front,” it said.