Construction activity falls to record low
Monday January 14 2008
Construction activity in the Irish economy in December, as measured by the Ulster Bank Purchasing Managers' Index, fell to its lowest level since the series began back in 2000.
As projects came to an end and few new schemes came on line to replace them, the record low -- although driven by an expected fall-off in housing completions -- was also marked by an unexpected reduction in activity in the commercial and civil sectors.
Pat McArdle, Ulster Bank chief economist said: "House completions are declining at record rates. As housing is two-thirds of construction this dragged overall construction activity into negative territory since mid-2007.
"However, December was unusual in that the other two components -- commercial and civil -- also contracted. Commercial activity has been teetering for some time but is now recording a significant decline. This has happened sooner than expected given that a good number of high-profile projects have yet to complete. The fall in civil activity is surprising as the National Development Plan was maintained and, indeed, accorded priority status in the recent Budget."
The marked fall in activity in the civil engineering sector was all the more surprising in that it was preceded by two months of growth. Commercial activity not only fell but fell at it sharpest rate for almost four-and-a-half years.
Not all see the fall-off in negative terms. While new orders fell for the ninth month in a row at a rate which was the sharpest in the history of the index, some commentators see this as a measure of the responsiveness of Irish firms to falling demand, forestalling very high surpluses which could in turn significantly drive down house prices.
Prices paid for inputs continued to rise in December, although the rate of cost inflation eased for the third month in a row and was the weakest since November 2003. Some firms reported that competition amongst suppliers had restricted input price inflation.
Construction firms are gloomy on the prospects for the sector with one in three expecting activity to be even lower in 12 months' time.
Mr McArlde said: "The outlook remains poor as orders are also at a record low and so is employment. It appears that projects finished are not being replaced and developers are reacting accordingly.
"As a result, confidence has now turned clearly negative though it is still above the 2001 and 2003 lows.
"It remains the case that the more drastic the curtailment of housing activity, the sooner the existing backlog will be cleared, allowing activity to resume."
- Tom McEnaney
