NCB Stockbrokers today expressed hope the Irish economy will return to growth this quarter as its latest manufacturing survey showed output and new orders fell only slightly last month.
The NCB Purchasing Managers' Index (PMI), which measures Irish manufacturing activity, rose to 48.0 from 46.6 in September, reaching the highest level since February 2008 and approaching the 50 mark that separates growth from contraction.
NCB noted production at Irish manufacturing firms fell for the 20th month running in October but that the rate of contraction was the slowest seen during that sequence.
"With global economic activity gathering momentum we are still hopeful that the Irish economy will begin growing in fourth quarter of this year and the latest PMI was comforting in this regard," said Brian Devine, economist at NCB Stockbrokers.
"Hopefully it [the index] is going to breach the 50 mark sometime this quarter, by the end of the year. The new orders in the leading indicator, and usually the headline follows," Mr Devine said.
However, he warned of the effect of volatile GDP due to the size of the exports relative to the rest of the economy. "There is hopefully an underlying trend toward growth, but because GDP is so volatile, I think it's going to be positive, negative, for a number of quarters.
"The question is whether the trend is just inventory restocking, or is it actually going to be positive, and a lot of it will have to do with the upcoming budget," he said.
New orders were almost back at the level separating growth from decline, registering their best performance since the sub-index was last above the 50.0 mark in February last year. New business from abroad contracted slightly in October, after rising marginally in the preceding month.
Spare capacity in the sector continued to be signalled by further declines in backlogs and employment. In addition to with workforce re-structuring, attempts to reduce costs were a key factor behind the latest "marked" drop in staffing levels, NCB said.
Despite the improving overall trend, the sub-index measuring new export orders in manufacturing declined in October to an adjusted 49.2 from 50.6 in September, which Mr Devine attributed to the weakness of sterling versus the euro.
"With UK exports under pressure it is a welcome sign that the US economy posted impressive GDP growth in the third quarter," he said.
In another cautiously upbeat release, the Irish Business and Employers Confederation (Ibec) said on Friday Ireland would pull out of recession during 2010 when it will suffer a smaller contraction over the whole year than earlier feared.
Additional reporting Reuters