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Irish Manufacturers Remain Positive Despite Cost Pressures

Irish manufacturers are feeling optimistic about the year ahead, with factories seeing an increase in new orders for the first time in nine months, according to the AIB Purchasing Managers Index (PMI).

The rise in new orders allowed factories to continue hiring staff for the third consecutive month, leading to a sharp drop in backlogs. Although inflationary pressures continue to be a concern, the overall reading of 51.3 for February indicates that manufacturers are firmly back in expansion territory.

AIB chief economist, Oliver Mangan, stated that the improvement in Irish manufacturing is due to a modest rise in new orders, but firms continue to face weaknesses in export orders.

Additionally, firms are grappling with elevated costs across a broad range of inputs, including raw materials, energy, transport, and labour costs, which are being passed on to clients in the form of higher selling prices.

Manufacturers are still being held back by a lack of demand amid an ongoing volatile economic environment. For example, demand from overseas fell further in February and at the sharpest pace since May 2020. However, Irish firms remain optimistic about future output, registering the strongest degree of confidence in a year, as production volumes stabilized in February.

Despite these positive developments, the flash manufacturing PMIs for the US, Eurozone, and UK remained in contraction territory in February, at 47.8, 48.5, and 49.2, respectively, pointing to ongoing declines in manufacturing activity in those economies. Data company, S&P Global, reported that Europe’s dominant service sector roared ahead while manufacturing activity struggled in its separate PMI last month.

In summary, while Irish manufacturers remain positive about the year ahead, cost pressures and a lack of demand continue to be challenges. Nevertheless, the increase in new orders and hiring trends indicate a positive trajectory for the industry.

Irish manufacturers have been buoyed by the uptick in new orders, which has led to a boost in employment. However, firms are still dealing with the fallout from the COVID-19 pandemic, as well as Brexit-related uncertainty, which has caused a significant drop in exports to the UK.

Furthermore, there are concerns about the impact of rising costs on businesses, as firms grapple with higher prices for raw materials, transport, and energy. Many firms are passing these costs onto customers in the form of higher selling prices, which could ultimately lead to a reduction in demand.

Despite these challenges, the overall outlook for Irish manufacturing is positive, with firms showing strong levels of confidence in future output. This optimism is reflected in the PMI, which indicates that the sector is back in expansion territory.

The resilience of Irish manufacturing is a bright spot in an otherwise challenging global economic environment. While manufacturing activity remains subdued in many other economies, Irish firms are continuing to hire staff and invest in future growth. This suggests that the industry is well-positioned to weather any challenges that may arise in the coming months.

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