The latest Investec Ireland survey of purchasing managers in Irish factories showed output jumped in December from November and expanded at its fastest pace since late spring in 2015, suggesting that “the worst of the pressure seen in the aftermath of the UK’s Brexit vote has passed,” Philip O’Sullivan, chief economist at the bank, said.
Activity in Irish factories has now returned to something of the rude health before the UK voted in June to quit the EU.
That pickup appears to be driven by the British economy, which having defied the worst fears it was facing into an economic slump, has been helped, in part, by the slump in the value of sterling lifting demand for its exports.
Sterling had slumped sharply in the aftermath of the Brexit vote and despite clawing back some losses, has lost about 12% if its value against the euro since the eve of the referendum.
Yesterday, sterling gained up to half a percentage point to trade at 84.8p. That’s still sharply lower from 73.6p this time a year ago.
On Ireland, “within the release we see ample reasons to be cheerful”, Mr O’Sullivan said, citing the strongest expansion in new orders in Irish factories since January 2015.
“Signs of improvement in Ireland’s closest neighbour helped to support a sharp monthly rise in new export orders”, he said, adding that the recovery from the “precipitous” drop in the aftermath of Brexit “shows that the sector has gotten back on track, presumably aided by the kicker from a strong US dollar and ongoing domestic strengthening”.
According to the survey, Irish factory output rose to 55.7 from 53.7 in November, where any reading above 50 means manufacturing output is expanding.
A similar survey of UK manufacturing, also published yesterday, showed growth there climbed to a two-and-a-half-year high last month, fuelled by new orders from the UK and abroad and adding to signs the economy ended 2016 strongly.
The Markit-CIPS manufacturing purchasing managers index rose to 56.1, the strongest reading since June 2014, from 53.6 in November. That exceeded all forecasts.
Britain’s economy has fared much better than many economists predicted, with consumer spending strong and companies continuing to perform well.
The UK manufacturing survey showed domestic and export order books grew, but so did cost pressures facing factories — something that will increasingly feed into consumer prices next year.
“The boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins,” said Rob Dobson, senior economist at IHS Markit.
He said higher costs were the flipside of sterling’s fall.
“Of the companies citing a cause of higher costs, 75% linked the increase to the exchange rate,” Mr Dobson said.
US manufacturing also expanded in December, at the fastest pace in two years. The US Institute for Supply Management said its index increased to 54.7 from 53.2.