Ireland’s manufacturing sector contracted in March, the first downturn in three months and signalling a loss of growth momentum across the sector.

Spare capacity was evident within the sector, with the sharpest fall in the backlog of work in more than a decade according to the AIB Ireland Purchasing Managers’ Index (PMI), which surveys 250 manufacturers across the country.

At 49.7, down from 51.3 in February, the March PMI reading signalled a deterioration in the health of the sector as intakes of new orders and manufacturing production both decreased and consequently, firms scaled back input purchasing further.

"A primary factor behind the weakening in Irish manufacturing in March was renewed declines in both orders and output, reflecting subdued underlying demand conditions," AIB's Chief Economist Oliver Mangan said.

"New export orders remained particularly weak as a result of sluggish global demand. With order books declining, spare capacity is becoming increasingly evident as backlogs of work continued their steep decline in March. Meanwhile, stocks of finished goods fell for the first time in eight months, while firms continued to scale back purchases of inputs."

The Irish March PMI reading was again above the flash manufacturing PMIs for the US, Eurozone and UK. These printed at 49.3, 47.1 and 48.0, respectively, pointing to continued subdued manufacturing activity globally.

According to the PMI report, little respite was offered in terms of foreign demand. New export orders contracted for the tenth month in a row with the latest reading signalling the sharpest fall over this period. Employment also expanded within the sector.

Upbeat projections

Despite current subdued demand conditions, Irish manufacturing firms remained strongly upbeat about their projections for output over the coming 12 months. The degree of confidence remained broadly in line with February’s year-long high amid hopes of a pick-up in market conditions, plans for product development and the anticipated commencement of new projects. Companies who forecast output growth over the coming year often cited plans for product development, the starting of new projects, and general hopes for a pick-up in demand conditions.

"Irish manufacturers continue to be optimistic about the future, with sentiment on the outlook for the coming 12 months remaining close to its highest level in the past year," Mangan said.

Another bright note was that input price inflation maintained its current downward trajectory and eased to its lowest level seen over the current 33-month sequence of inflation. The latest increase in operating expenses was reportedly curbed by moderations in raw material and energy prices. However, it meant Irish manufacturing firms raised their selling prices again to mark two-and-a-half consecutive years of monthly increases in output charges but the pace of inflation in factory-gate charges eased notably from February and was the least pronounced since December 2020. Mangan said both input and output price indices were approaching levels that would signal a stabilisation in prices.

The moderation in inflation and any signs of easing price pressures will likely be welcomed by policymakers at the European Central Bank who have failed to get inflation anywhere near their 2% goal despite having embarked on the most aggressive interest rate hiking policy since the Bank's formation.

Reporting: The Irish Examiner