Irish indigenous firms are “struggling” following the slump in the value of sterling against the euro in the wake of the UK’s vote in June to leave the EU, a leading economist has said.
The warning comes as the CSO published industrial output figures which showed the so-called ‘modern’ part of the economy, which includes the many multinational pharmaceutical plants based in the country, rose sharply, by 14.1%, in July from a year earlier.
Output for all factories grew by an annual 7.4%, but the CSO again issued a ‘health warning’ on the figures following the huge upward revisions published in July to Irish GDP levels.
The CSO had said at the time that the huge revisions didn’t necessarily mean there was any significant increases in employment in Ireland.
However, the industrial output figures also showed the output of the traditional sector of the economy — which includes many Irish firms such as food and beverage producers which employ many thousands of people — fell 1.3% in the month, and is now 8.9% lower than in July 2015.
“We can see that the indigenous Irish manufacturing sector is struggling,” said Conall Mac Coille, chief economist at Davy Stockbrokers.
“The pace of this contraction is accentuated by the volatility in the data. Nonetheless, taking the first seven months of 2016 together, traditional sector output is down 1.8% on 2015 after a relatively robust 4.4% expansion in 2015.”
Sterling has fallen from 76.8 pence against the euro on the eve of the UK’s Brexit vote on June 23 to trade at 83.8 pence.
The weakness of the pound, along with uncertainty about the prospects of the UK economy, make it more difficult for indigenous Irish producers to sell goods across the Irish Sea.
The Investec Ireland purchasing managers’ survey published last week showed that manufacturing here expanded only slightly in August, and was growing at a significantly slower pace than earlier this year.
Separately, the Investec Irish services survey, which was published yesterday, had much better news for the economy.
Its services purchasing managers’ index showed “a marked expansion” in the headline rate of activity last month.
“The rate of expansion in the new export business index tumbled to a five-month low with some respondents reporting lower new orders from the UK, in part due to the strength of the euro compared with sterling following the result of the UK’s referendum on EU membership,” said Philip O’Sullivan, chief economist at Investec Ireland.
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