Joe Brennan

Irish manufacturing activity grew at its slowest pace in almost three years in May as export orders fell amid concerns about the outcome of the UK referendum this month on continued EU membership.

The Investec Manufacturing Purchasing Managers Index, which is designed to provide a leading indictor of the health of the industry, fell to 51.5 in May, the weakest figure since July 2013, from 52.6 in April.

A reading above 50 means that the industry is expanding.

New export orders fell marginally in May, ending a 34-month straight run of expansion. Almost a fifth of managers that took part in the survey signalled a fall in new demand from abroad. Manufacturing and exports were the main driver of the Irish economic recovery following the financial crash, with consumers only emerging more recently to underpin Ireland’s recovery to become the eurozone’s fastest-growing economy.

“Manufacturing output continued to rise at a solid pace in May, extending the current sequence of monthly expansion to three years,” said Investec. “That said, the rate of growth eased to the slowest in 27 months.”

Investec economist Phillip O’Sullivan has previously warned that the second quarter would be a “tricky period” for Irish manufacturing activity as voters in the UK prepared for the so-called Brexit vote on June 23 on whether to remain in the EU.

Sterling fell against the euro and 15 other major currencies on Tuesday as a poll released by the Guardian newspaper showed a jump in support for the campaign to take Britainout of the EU.

“So, assuming that our base case that UK voters choose to remain in the EU comes to pass, we suspect that conditions for Irish manufacturing firms should pick up in the third quarter and beyond,” he said.

The data also pointed to a contraction in profit margins for manufacturing companies, with input costs increasing for the first time in nine months, while output prices continued to decrease.

The Irish manufacturing PMI reading for May was bang in line with a eurozone average figure which was also published on Wednesday. The index for the euro region fell from 51.7 in April and 52.2 a year ago, though it marked the 18th consecutive month of expansion.

UK manufacturing activity managed to scrape back into expansionary mode in May to surprise most economists, with the country’s index rising to 50.1 from 49.4 a month earlier.