Irish manufacturing hit in October as exports weaken further

The survey showed new export orders falling sharply, “with manufacturers mostly citing weak demand fell elsewhere in Europe”

The contraction in Irish manufacturing deepened in October, a major survey has confirmed, as the slowdown in the world economy sparked by faltering consumer demand and interest rates hikes continue to weigh on output.

The latest AIB Purchasing Managers’ Index of Irish manufacturing showed a “weak picture” with exports and order backlogs falling and leaving employment levels “stagnant” at Irish factories in the month.

The overall index reading of 48.2 was down from September’s 49.6 where any reading below 50 shows manufacturing conditions were worsening rather than getting better or remaining unchanged.

The survey showed new export orders falling sharply, “with manufacturers mostly citing weak demand fell elsewhere in Europe”.

“Significant declines in new orders and output were the primary factors behind the continued weakening in Irish manufacturing conditions in October,” said Oliver Mangan, chief economist at AIB, in a commentary.

“Firms reported that subdued demand in both domestic and export markets, higher borrowings, costs and leaner inventory strategies all weighed on activity. New orders, in particular, fell at their fastest pace since last December,” he said.

Irish manufacturing includes a large number of multinationals who sell the bulk of their goods to the US and to other parts of Europe, as well as Irish-owned factories such as food and drink producers that are producing goods for the Irish market exclusively.

There is therefore little surprise that the Irish manufacturing conditions have worsened, but as the survey highlights, manufacturing conditions in other parts of the eurozone, which are key export markets, have deteriorated more rapidly.

The update on inflation was more positive: Energy costs rose but raw material costs fell meaning that pressure on costs was “relatively muted” and “lower factory gate prices have now been recorded for six consecutive months, but the rate of decline eased markedly since September”, the survey reported.

Meanwhile, Eurostat figures showed GDP fell 0.1% in the eurozone in the three months to the end of September, and inflation falling to 2.9%.

But economists generally agreed it marked the start of a shallow recession in the eurozone, which may be aggravated by the armed conflicts taking place on Europe’s doorstep in Ukraine and in Gaza.

“It does look like the economic environment is weakening at the moment, but no sharp recession is in sight either,” ING economist Bert Colijn said.

“Still, continued economic and geopolitical uncertainty alongside the impact of higher rates on the economy will weigh on economic activity in the coming quarters,” he said.

The GDP and inflation figures mean the ECB has almost certainly finished raising interest rates, which are at record highs after an unprecedented streak of 10 consecutive hikes, and will now watch their impact play out before making further moves.

Additional reporting by Reuters