Sharp fall in Irish manufacturing activity in June

The reading highlights the fragile and volatile nature of the post-pandemic recovery that has been marked by high inflation.

There has been a sharp drop in manufacturing activity in Ireland, with June recording the most severe contraction in almost a year.

Businesses in the sector reported a drop in new orders and production as the impact of inflation continues to bite. The AIB Purchasing Managers’ Index (PMI) released today shows a reading of 47.4 in June, down from 49.8 in May. Anything below 50 indicates a contraction in activity.

The reading for June means the health of the Irish manufacturing sector worsened for the fourth straight month and at an accelerated pace. The latest downturn was the most marked since July 2023.

The reading highlights the fragile and volatile nature of the post-pandemic recovery that has been marked by high inflation.

The reading for May had remained broadly stable.

The 250 Irish manufacturing firms that were surveyed noted that the current economic climate dissuaded client activity.

As a result, demand retreated sharply, which in turn meant that production levels were scaled back at a sharp pace.

Both new orders and output decreased for the fourth month running, with the latter contracting to the greatest extent in 11 months.

“The Output Index has now been below the 50 mark for four months running, with the fall in factory production the fastest recorded since July 2023,” said AIB chief economist David McNamara.

“Respondents in June attributed the fall to reduced client activity. New orders fell at the second-fastest pace in 18 months.

“Firms linked this drop to the current economic climate, which has impacted both domestic and foreign demand.

“This has also been reflected in new export orders coming in below 50 for the fifth successive month as foreign demand remained subdued.”

As has been the case since October 2023, inventories of finished goods fell in June. The rate of depletion quickened to the fastest in nearly two and a half years and was sharp overall.

According to anecdotal evidence, the latest downturn was driven by falling new orders.

Despite a continued drop in eurozone inflation rates, cost burdens facing goods producers rose at the quickest rate since March amid
reports of higher raw material and supplier prices.

In turn, panellists have passed on their costs to customers.

The pace of increase in output prices was the quickest in 14 months and stronger than the long-run average.

Manufacturing activity has remained subdued across Europe for almost two years now, with analysts forecasting that the sector is not going to add meaningfully to economic activity this year.

A survey-based gauge of Europe’s manufacturing sector showed activity for May remained below the mark, denoting growth for a 23rd month.

The main bright spot for the Irish manufacturing sector remained employment. Staffing levels have now been raised in five of the last six survey periods.

However, the ongoing decline in production requirements impacted recruitment activity.

The rate of job creation broadly stalled in June, having lost momentum from May’s eight-month high. Surveyed manufacturers reported difficulties in retaining staff amid the ongoing decline in output.

The other positive from the Irish PMI report was a continued positive outlook from manufacturers on output for the year ahead, largely based on an expectation of further rate cuts this year.

“Positive expectations stemmed from hopes of further rate cuts over the next year, as well as a recovery in client demand,” said Mr McNamara.