Irish factories take summer hit amid manufacturing downturn in Europe

Survey findings show the effects of rapid interest rate increases in Europe and the US

AIB Purchasing Managers' Index: Ongoing contraction in Irish manufacturing activity is in line with the trend in most other economies. Picture: David Creedon

Irish manufacturing activity contracted sharply again in July, reflecting weakened levels of global demand following the rapid rise in interest rates, the monthly reading of Irish factories has revealed.  

The AIB Purchasing Managers' Index showed that new orders contracted for the fifth month in a row, and by "the sharpest in the year so far", while demand from overseas also fell, "albeit at a softer rate", and that the fall in new orders for exports "was the fourteenth in successive months, but the weakest in 2023 to date". 

The overall index showed a reading last month of 47, down from 47.3 in June, where a reading below 50 marks declines in factory activity. 

"The ongoing contraction in Irish manufacturing activity is in line with the trend in most other economies, amid a global downturn in the sector, especially in Europe," said AIB chief economist Oliver Mangan, in a commentary.  

The Ireland manufacturing survey is one of a series of surveys carried out every month in almost every economy in the world. The findings show the effects of rapid interest rate increases in Europe and the US, which the ECB and the US Federal Reserve may take as evidence that their policies to tame inflation are working. 

The global central banks are attempting to rein in demand without sinking economies into sharp recessions and pushing up unemployment. Critics have said that they are running the risk of sinking economies.  

Optimism

In Ireland, the latest survey suggests some good news on manufacturing employment which increased in the month. Factories also said their input costs fell again and they "sought to transfer some of these cost savings through to their clients", according to the survey. 

Purchasing managers here were also optimistic that demand would pick up, but their confidence was still at "historically subdued" levels, the survey showed.