Irish manufacturing contracted for the first time in over a year in March, and the euro zone's problems led to the sharpest contraction in new export orders since August 2009.

The economy has expanded for the last two years, raising the prospect of a successful bailout exit, but it contracted in the third quarter of 2012 and was flat in the fourth as weak external demand weighed on exports.

The NCB Manufacturing Purchasing Managers' Index fell to 48.6 in March from 51.5 in February, below the 50 line dividing growth from contraction for the first time since February last year.

"This is a disappointing release, with declines observed on the output, new orders and employment fronts," said Philip O'Sullivan, chief economist at NCB Stockbrokers.

"We will closely watch April's release to see if any of these trends have persisted into Q2, paying particular attention to see if the elevated macroeconomic uncertainty of recent days and weeks weigh on survey findings."

Manufacturing contributes around one quarter of the State's gross domestic product, according to World Bank figures.

The contraction in Irish manufacturing tallied for the first time in over a year with activity for the euro zone as a whole as reflected in flash PMI data released in mid-March.

Irish manufacturing has consistently outperformed the euro zone average over the past 12 months, and the survey reached a 15-month high of 53.9 in July last year.

But the fall in new export orders to 47.1 from 50.1 in February, together with falls in other sub-indices, showed the government may face a challenge this year in reaching the 1.5 percent economic growth it has pencilled in.

Reuters