Manufacturing sees strong growth despite uncertainty

Manufacturers noted a boost from rising sales to US clients, but this was offset by reports of weak demand across the UK and eurozone.

The Irish manufacturing sector saw the fastest pace of growth in 12 months during February, but there continues to be a “softness in external demand” — particularly when it comes to the EU.

According to the latest AIB Ireland Manufacturing Purchasing Managers Index, Irish firms recorded a sustained rebound in production volumes in February — resulting in a reading of 51.9 last month, compared to the 51.3 recorded in January.

The index reading is a composite single-figure indicator of manufacturing performance based on a number of business indicators such as new orders, output, employment, suppliers’ delivery times, and stocks of purchases.

Any figure greater than 50 indicates overall improvement of the sector.

The Irish index for the sector remains above that of the eurozone, US, and Britain, with readings of 47.3, 51.6, and 46.4 respectively.

AIB chief economist David McNamara said the upturn in the sector marks the “fastest pace of growth in 12 months” due to “stronger growth in output and new orders, and a renewed upturn in purchasing activity”.

The latest increase in total new work was the fastest recorded since May 2022, which helped to support another expansion of staffing numbers and a renewed upturn in purchasing activity.

“Output rose robustly in February, amid a general improvement in demand conditions. This was reflected in accelerated growth in new orders, but respondents did note continued softness in external demand,” Mr McNamara said.

The weakness in external demand led to “stagnant export orders”, according to Mr McNamara, with firms citing subdued European demand. Manufacturers noted a boost from rising sales to US clients, but this was offset by reports of weak demand across Britain and the eurozone.

AIB said the data from February showed a sharp and accelerated rise in average cost burdens with input cost inflation intensifying.

Suppliers have sought to pass on rising raw material prices and greater salary payments. The overall rate of input price inflation was the steepest for two years in February. 

Despite some uncertainties, AIB said that manufacturers are still “upbeat” about their growth prospects over the next 12 months.

Around 40% of the survey panel predict a rise in output over this time frame, while only 10% forecast a reduction.

“Optimism was typically linked to new product development and hopes of a turnaround in general market conditions,” AIB said.

“However, the latest survey indicated that the degree of confidence eased for the second month running to its lowest since September 2024.

“Manufacturers mostly cited worries about broader economic prospects over the year ahead, particularly in major export markets.”

This manufacturing index encompasses responses from companies that produce a wide range of products — including food, beverages, pharmaceuticals, as well as electronics and other equipment.

This latest index reading comes following threats made last week by US president Donald Trump to slap a 25% tariff on the EU, claiming that the bloc was created to “screw” the US.

The EU is the US’ third largest trading partner alongside China.

Mr Trump didn’t specify if certain industries would be targeted, but he did mention carmakers — adding that levies would be applied “generally”.

Around 45% of Irish exports to the US during 2024 were pharmaceutical and medical products which were valued at €44.4bn, while the next highest category was organic chemicals valued at €9.4bn.