The manufacturing sector shrank again in July as falling demand led to a decline in new orders during the month.

That was the second month in a row that the NCB manufacturing purchasing managers' index fell below the 50 mark that separates growth from contraction, with the index slipping to to 48.2 in July from 49.8 a month earlier.

"Although the reading signalled only a modest deterioration in operating conditions,
the decline was the strongest since January 2010," NCB said.

The survey revealed that the decline in new orders accelerated during the month, falling to 47.9 from 48.7.

Manufacturers were also forced to absorb much of the higher costs incurred during the month, fuelled by oil and commodity prices, as increased competition for new business and falling demand made it difficult to pass the charges on for the most part. Manufacturers raised charges only slightly, with the index or output charges at 50.4 for the month, while the input charges index was 59.3.

"Despite easing for the fourth month running, the rate of cost inflation remained sharp, and faster than the long-run series average," NCB said.

Employment at Irish manufacturing firms also fell, declining for the third month in a row as workloads declined. However, the pace of decline slowed compared to June, with the index recording 49.1 for July compared with a reading of 48.3 in June.

Exports continued to grow, although the expansion was modest and the weakest in the current 10-month sequence of growth, growing to 51.5 from 51.3.

"Exports have been carrying the economy for the last number of years and Ireland needs them to continue performing robustly to counterbalance the drag from the domestic part of the economy which has still not stopped contracting," said NCB chief economist Brian Devine. "To-date exports have held strong, growing by just under 8 per cent according to the 2011 half-year export review from the Irish Exporters Association."