Manufacturing activity continued to gather pace in July, however the rate of increase in activity remained modest, according to the latest NCB Purchasing Managers' Index (PMI) published yesterday.

A recovery in manufacturing is also in evidence in the euro zone.

The index rose for a second successive month to a level of 51.4 from a level of 50.7 in June. A value of 50 indicates that surveyed purchasing activity in manufacturing neither increased nor decreased.

New orders in manufacturing increased in July in line with the overall index, but the level of employment in manufacturing fell for the third month in a row, according to companion indices published by NBC.

The recent recovery of the overall index follows falls during the first three months of this year.

Last week data from the Central Statistics Office (CSO) showed that Gross Domestic Product (GDP) - a measure of goods and services produced in the economy - grew by just 2.4 per cent in the first quarter. This compares with a GDP growth rate of 4.5 per cent during 2004 and implies a slowing of the economy early this year. The CSO said that poor performance in industrial exports was a significant factor in the poorer growth performance.

According to latest trade statistics release by the CSO, the value of exports sold in the first four months of 2005 were lower than in the first four months of 2004. But according to NCB Chief Economist Dermot O'Brien, the latest trend in the index is a good sign for the economy.

"To the extent that external demand was soft in the first quarter, the NCB Manufacturing Purchasing Managers' survey suggests that things improved in the second quarter," he said.

Detailed trade statistics for May and preliminary data for June will be released on Friday.

Manufacturing is also recovering in the euro zone, according to a survey published by NTC Research, who also compile the Irish purchasing managers' index on behalf of NCB. The NTC Research manufacturing index for the euro zone rose to 50.8 in July from 49.9 in June. This was in part due to the effect of a weaker euro spurring sales of equipment to manufacturers abroad, according to NTC Research.