Recent Irish industrial production data shows a sharp 12% fall in December. Movements of this magnitude are not uncommon and the bigger picture is that the Irish manufacturing sector rebounded strongly in 2014. Output in the pharmaceutical sector, up 45%, was artificially inflated by ‘contract manufacturing’. However, traditional manufacturing, which comprises two-thirds of employment in industry, saw output rise by 6.8% in 2014. The 2015 outlook looks relatively favourable, with the Irish manufacturing PMI at 55.5 in January still pointing to a robust expansion.

The January consumer confidence survey surged to its highest level since February 2006. With tax cuts hitting pay packets in January, some improvement in household sentiment was expected. However, Irish households still seem firmly in de-leveraging mode despite rising confidence. New Central Bank data shows a renewed fall in household debt levels to 177% of disposable income in Q3, 2014, down from peak levels of 210% in 2011. Household debt is now equal to €161 bn. The Central Bank data also shows that household net worth has increased to €574 bn. This is the highest level since Q1, 2009, with the improvement in 2014 mainly due to rising house prices.

The Irish construction PMI suggests that the sector slowed sharply in January. The overall index fell from 63.1 in December to 57.1 in January. The most pronounced fall was in housing activity with the index falling to 54.4 from 61.4. The commercial activity index remained robust at 61.6, down slightly from 63.3. Civil engineering also saw a modest decline from 57.4 in December to 54.5 in January. One potential explanation for the slowdown in the construction PMI is that uncertainty surrounding the impact of the Central Bank’s new mortgage lending rules has led to a temporary slowdown in housing activity. However, the bigger issue is that supply constraints may be holding back housing starts in urban areas where demand is greatest.