Irish manufacturing sends out a warning ahead of two key Government forecasts

AIB Irish Manufacturing Purchasing Managers’ Index warns that factory activity has fallen at its sharpest rate since the depth of the pandemic

Any slowdown in pharma exports could be an early warning about the sustainability of Irish tax revenues which rely to a great extent on multinationals. Stock picture

Activity levels of Irish factories fell last month at their sharpest rate since the depth of the covid crisis, with key export sales in particular flashing a warning sign, just as the Government prepares to publish its latest economic outlook.

The findings come from the AIB Irish Manufacturing Purchasing Managers’ Index which covers both multinationals — such as the large number of pharma giants that export to global markets — and Irish-owned factories selling products into the home market. 

It is one of numerous similar surveys carried out across almost every economy in the world.

The June survey appears to reflect troubling signs of a rapid slowdown of the global demand for products following the rapid rise in world interest rates and the ending of the post-pandemic boom — which could have major implications for the Irish exports, the Irish economy, as well as potentially the public finances, and for jobs.

It showed that output from factories fell at its fastest rate since early 2021, that the overall health measure of manufacturing sector here fell at its sharpest for three years, and that Irish manufacturing employment fell at the fastest clip in almost three years.

“Reports of demand weakness were widespread across the latest survey,” the survey reported. 

The impacts of this were clearly felt with regards to new orders, which declined for the fourth month running in June. Difficulties in securing sales were especially prevalent in the export market. 

“Foreign client demand deteriorated for the 13th successive month and at a strong rate overall,” the survey found.

Two key forecasts due tomorrow

On Tuesday, the Government will publish its updated economic forecasts which it submits to the Economic Commission before unveiling its 2024 budget in September.

Also on Tuesday, the Department of Finance will publish the latest exchequer returns that will show the amounts the Government has collected in tax revenues in June and the amounts of spending departments have undertaken in the month.

The tax revenue figures and corporation tax receipts, in particular, will again be scrutinised, but not for the usual reasons of the stellar amounts paid by a small number of multinationals that accounted for the lion’s share of the record €22.5bn the Government collected in company taxes last year. 

Potential slowdown

This time, there are some early signs of a potential slowdown in some parts of the multinational economy, following its huge ramp-up in recent years.

In its quarterly report, the Economic and Social Research Institute (ESRI) last week signalled as a potential cause of concern the slowdown in exports from pharma in the opening months of this year.

Pharma multinationals in Ireland include the likes of Pfizer, the US giant that had a spectacular performance during the worst of the covid years. Any slowdown in pharma exports could be an early warning about the sustainability of Government tax revenues tax revenues which rely to a great extent on multinationals.

The Government has already committed to set aside billions of euro from corporation tax revenues into its existing National Reserve Fund and into a new sovereign fund, if it were to decide to implement plans to set up a second fund.

On output, the AIB survey reported “anecdotal evidence” suggesting “that the latest drop in output was mainly a result of subdued demand and a sustained fall in new orders”.

There were also mentions of unfavourable weather conditions hampering new sales.

It found that the decline in new sales “was overwhelmingly linked by panel members to current demand fragility”, while the decline of new export orders “softened from May’s three-year record fall, but was strong nonetheless”.

There was better news on price inflation: Input costs fell amid “moderations” in raw materials, with falls in electricity and gas costs also helping.