Irish manufacturers buck European trend with rise in activity

Most of Ireland’s manufacturers saw activity levels rise for the first time in six months in August, according to a closely watched poll that highlights the divergence between its booming economy and the rest of Europe.

The AIB Manufacturing Purchasing Managers’ Index, compiled by S&P Global, rose to 50.8 in August from 47 in July. A reading above 50 indicates expansion, while a reading below indicates contraction. Ireland’s figure compared with readings of 43.7 and 42.5 for the eurozone and the UK, respectively.

Factory activity rose for the first time since February, driven by more new orders and signalling that activity would remain strong in the coming months.

New export orders rose after 14 months of declines, and confidence for the sector in the coming year hit its highest level in six months, the survey found. Companies were also hiring workers at the fastest clip since February.

The PMI follows the publication of Irish industrial production data that was so strong it skewed a recent EU-wide data release.

While much of the industrial production gains reflect the country’s large base of global tech and pharmaceutical companies, set up in Ireland to take advantage of its attractive 12.5 per cent corporate tax rate, the PMI data suggests the country’s economy is stronger than that of the rest of the region.

Despite the upbeat August reading, the Irish PMI remained below its historical average.

While noting that the rise in Irish activity was “in marked contrast to the trend elsewhere”, AIB chief economist Oliver Mangan said it would be interesting to see whether the expansion would continue “given the ongoing weakness of manufacturing globally”.

Weak activity across the 20-nation eurozone has fuelled calls for the European Central Bank to stop increasing interest rates.

Eurozone core inflation, which excludes food and energy prices and is seen as a better measure of underlying price pressures, edged down in June, raising hopes in financial markets that the ECB would hold rates steady at 3.75 per cent at its next meeting on September 14.

However, at 5.3 per cent, headline and core inflation remain well above the ECB’s 2 per cent target. Economists believe the September decision is a close call and say rate-setters could still raise borrowing costs for the 10th meeting in a row given the stickiness of price pressures and the strength of the region’s labour market.

The ECB has lifted its benchmark deposit rate from minus 0.5 per cent to 3.75 per cent.