Industrial production fell back by 5.3 per cent on an annual basis in February, driven down by a sharp decline in the technology and chemical sectors.

Figures released by the Central Statistics Office yesterday show that the "modern sector" posted a year-on-year decline in production of 9.6 per cent in February.

This came as output in the "traditional" sector increased by 4.2 per cent, having also grown in each of the previous six months.

The modern sector, which comprises firms active in computers, electrical machinery and chemicals, has, however, made more volatile progress.

Last month's annual drop came in the wake of a 12.2 per cent annual jump in the previous month and a 2.2 per cent decline in the month before that.

Rossa White, an economist with Davy, said that while underlying production growth had been solid in recent months, output in basic chemicals in particular had "bounced around a lot". He pointed out that a 33 per cent gain in the sub-sector in January had been followed by a 38 per cent fall in February.

"This sort of volatility is typical in a sector influenced by transfer pricing and royalty payments," Mr White noted.

Taking yesterday's data as a whole, Dermot O'Leary, chief economist with Goodbody, said it was unlikely that producers had "suddenly" cut back on their production levels in the face of improving global economic growth prospects. He suggested it would take a number of months for volatility to wash itself out of the data.

Alan McQuaid at Bloxham also expects the overall situation in production to improve, assuming that the external environment is positive and the chemicals sector stages a pick-up.

He forecasts overall output growth of 4-5 per cent for the year.