Irish manufacturing activity experienced a significant contraction in July, as global demand weakened due to the rapid increase in interest rates. The latest monthly reading of Irish factories, as indicated by the AIB Purchasing Managers’ Index, revealed that new orders declined for the fifth consecutive month, reaching the sharpest contraction so far this year. Meanwhile, demand from overseas also fell, albeit at a slower rate. The decline in new export orders marked the fourteenth consecutive monthly decrease, but it was the weakest in 2023 to date.
The overall index for July stood at 47, down from 47.3 in June. A reading below 50 indicates a decline in factory activity. AIB chief economist Oliver Mangan commented that the ongoing contraction in Irish manufacturing activity aligns with the trend observed in most other economies, reflecting a global downturn in the sector, particularly in Europe.
The Irish manufacturing survey is part of a series of monthly surveys conducted in nearly every economy worldwide. The findings highlight the impact of rapid interest rate hikes in Europe and the US, which the European Central Bank (ECB) and the US Federal Reserve may interpret as evidence that their inflation-taming policies are effective. These global central banks aim to curb demand without pushing economies into severe recessions and driving up unemployment rates. However, critics argue that this approach carries the risk of sinking economies further.
Despite the challenging conditions, there is some positive news on the employment front in Irish manufacturing. The latest survey indicates an increase in manufacturing employment during the month. Additionally, factories reported a decline in input costs and attempted to pass on some of these savings to their clients. Purchasing managers in Ireland expressed optimism that demand would improve, although their confidence levels remained historically subdued, according to the survey.