Manufacturing output (not seasonally adjusted) declined by 4.3% year-on-year (y/y) in May, worsening from the 2.9% decline recorded in April. The outturn was also weaker than the Bloomberg consensus expectation of a 3.1% contraction.
Seasonally-adjusted manufacturing output, which is more relevant for quarterly GDP calculations, partially rebounded, increasing by 1.1% month-on-month (m/m) after contracting by 2.6% at the start of the second quarter. However, in the three months to May, output was still down 1.0%, suggesting that the manufacturing sector may continue to weigh on second-quarter GDP growth.
Outlook
Manufacturing activity remains constrained, with output declining by 1.7% in the first five months of 2026, exceeding the full-year contraction of 1.3% recorded in 2025. The sector is expected to remain under pressure in the near term amid elevated production costs stemming from the initial impact of the Middle East conflict, alongside persistent domestic infrastructure constraints. These headwinds are reflected in the Manufacturing PMI, which deteriorated further in June, falling below the neutral 50-point mark to 47.3.
The Business Activity Index also remained firmly in contractionary territory at 45.6 points, signalling continued weakness in operating conditions. While the Expected Business Conditions Index improved to 56.6 points, it remained materially below its pre-Iran conflict peak of 68.8 points, suggesting that manufacturers remain less optimistic about the near-term outlook.
Selected sector analysis
The decline in May output was pronounced and broad-based, with seven of the ten manufacturing divisions recording annual contractions (Figure 3). The largest drag came from the food and beverages division, where output declined by 6.4% y/y, subtracting 1.6-percentage points (ppts) from overall manufacturing growth. This was followed by the basic iron and steel division, which contracted by 5.6%, shaving off 1.3ppts, and the wood and wood products division, where output slumped by 11.0% y/y, reducing overall growth by a further 1.0ppt.
Automotive-related production declined by 3.8% y/y, an improvement from the 11.2% contraction recorded in April. Within the sector, motor vehicle production declined modestly by 1.1%, while the production of parts and accessories fell by a steeper 8.4%.