Belfast Telegraph

Manufacturers suffer as Eurozone demand drops

By Graeme Evans

A weakening of demand from the eurozone weighed heavily on manufacturers last month, after figures showed an easing up in the pace of the sector's recovery.

The Chartered Institute of Purchasing and Supply's (CIPS) activity index - on which a reading over 50 indicates that there has been growth - slipped to 57.3 in July.

This was the tenth month of growth in a row, although down on the 15-year high of April and May.

CIPS said the performance represented a robust start to the third quarter of the year, with further increases in both production and new work received now encouraging firms to lift employment for what was the fourth consecutive month.

Foreign demand showed only a slight improvement, with increased sales to the United States and clients in Asia offset by slower trade flows to Europe.

Rob Dobson, senior economist at CIPS's survey partner Markit, said the slowdown in exports will raise fears that growth may slow more sharply in the coming months.

He said: "Some slowing was to be expected, given the weakening in global trade flows that have been evident in recent months, particularly in Asia, as authorities act to cool their economies in a bid to ward off inflation.

"But the extent of the slowdown in export sales is very surprising," Dobson continued.

"That suggests that UK manufacturers are losing out in the global recovery, which will disappoint those that are hoping the UK economy can rebalance away from domestic consumption and move more towards exports."

The UK manufacturing industry has recouped around a third of the output lost during the recession, according to Mr Dobson.

The sector made a strong contribution to the 1.1% growth in GDP seen in the second quarter of 2010, although Jonathan Loynes of Capital Economics said the weaker trend in exports may limit the impact in the second half of the year.

"The weakness of demand in the eurozone, coupled with the pound's recent appreciation, appear to have brought the export recovery to a halt," he said.

While average purchase prices continued to rise at a substantial pace, the rate of inflation slowed sharply to a five-month low, CIPS said.