Manufacturing output and new orders fell for the first time in 16 months in June, completing a turnaround from the start of the second quarter of the year when both metrics were rising sharply, the latest AIB purchasing managers' index (PMI) shows.

The index measured 53.1 in June, down from 56.4 in May and the lowest reading since February 2021.

An index figure above 50.0 indicates improvement in business conditions.

"There are clear signs that the slowdown in global manufacturing activity is extending to Ireland in the Manufacturing PMI survey for June," said Oliver Mangan, chief economist at AIB.

"While the index remained in expansion territory, it was the lowest reading since February 2021. The fall was in line with the trend seen in other economies - the flash June indices fell to 52.0 and 53.4 in the Eurozone and UK, respectively, with the US index declining to 52.4."

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Job creation, a rise in stocks of purchases and further lengthening of suppliers' delivery times ensured the sector continued to grow last month, but the reduction in new orders ended a 15-month sequence of expansion.

Respondents to the survey indicated the inflationary pressure was the leading factor in demand shrinking. New export orders also fell for the first time in 16 months, and at the fastest level since the first wave of Covid-19, again due to price pressures.

Manufacturers scaled back production in response to reduced demand, causing output to decline, but while production was down in the consumer and intermediate goods sector, it rose among investment goods producers.

AIB said there was "a degree of spare capacity" at manufacturers due to lower new orders, which was used to work through outstanding business, helping to reduce backlogs for the second consecutive month and to the greatest extent since January 2021.

Cost pressures slowed in June, but inflation remained higher that at any point prior to Covid-19, with higher energy and transportation prices leading firms to increase their selling prices.

There was a near-stalling in purchasing activity, and some firms lowered input buying in line with the fall in new orders, although some continued to buy to stay ahead of supply-chain disruption, with supplier's delivery times again lengthening substantially.

Efforts to mitigate supply-chain disruption and hedge against cost increases led to a rise in stocks of purchases, albeit one that was only modest, but firms remain confident that output will increase over the next year.

The level of optimism was broadly in line with that seen in the previous month. That said, some
firms expressed concern regarding the potential impact of price rises on demand.

"In this regard, the upward pressure on input prices is still intense, with marked increases in energy and transportation costs. Meanwhile, the rate of output price inflation remains elevated, though it did slow sharply to a five month low in June," Mangan added.