Irish factory activity nears 2020 highs in March rebound - PMI

DUBLIN (Reuters) - Irish factory activity rebounded to within touching distance of 2020 highs in March, boosted by new orders and optimism about the reopening of the economy from COVID-19 restrictions in the coming months, a survey showed on Thursday.

But the survey's authors also warned of inflationary pressures and said supply chains were under severe strain.

The AIB IHS Markit manufacturing Purchasing Managers' Index (PMI) jumped to 57.1 in March from 52.0 in February. That left the index just short of the 2020 high of 57.3 registered in July and well above the 50.0 level that separates expansion from contraction.

Output, new orders and exports all rose strongly for the first time this year, while employment increased at its fastest pace in over two years, the survey's authors said. The 12-month outlook for production was close to a two-year high.

"Output returned to a strong growth path after contracting in the previous two months, driven by a marked pick-up in orders, including from abroad, as demand strengthened," said AIB chief economist Oliver Mangan.

But he said supply chains remained under severe pressure, due in part to customs arrangements following Britain's exit from the European Union's trading orbit in January, while respondents reported difficulties in sourcing raw materials and inputs, leading to a lengthening in delivery times.

"These factors, combined with the strengthening in demand, are generating increased inflationary pressures," Mangan said.

The manufacturing sector, which hit a low of 36.0 on the index in April, has been allowed to operate during most of Ireland's COVID-19 lockdown, one of the longest and tightest in Europe.

Ireland's retail sector this week reported strong figures despite the strict lockdown, with sales jumping 13.9% month-on-month in February.

(Reporting by Conor Humphries; Editing by Hugh Lawson)