Sunday 19 August 2018

Rate of growth in building sector at 29-month low

The rate of growth in the Irish construction sector slowed for a third consecutive month in August. Stock Image: PA
The rate of growth in the Irish construction sector slowed for a third consecutive month in August. Stock Image: PA
Gavin McLoughlin

Gavin McLoughlin

The rate of growth in the Irish construction sector is at its slowest in 29 months, dragged down by a continuing decline in civil engineering activity.

The figures indicate that infrastructure construction is slowing while house building is increasing, raising the prospect of bottlenecks for citizens.

Overall, the rate of growth in the Irish construction sector slowed for a third consecutive month in August, reaching a 29-month low.

The statistics are contained in the latest Ulster Bank Purchasing Managers' Index (PMI) for the sector - a monthly barometer of activity.

Despite the slowdown, the rate of growth in the sector remained solid, with the headline figure for the index coming in at 55.1. Anything over 50 indicates expansion.

"Last month's reading remains well above the 50 breakeven level, and indicates that firms continue to report widespread expansion. That is notably the case in relation to both the housing and commercial sub-sectors, with a further sharp monthly increase in residential activity leaving housing as the best-performing sector last month," said Ulster Bank's chief economist for the Republic of Ireland, Simon Barry.

Simon Barry, chief economist at Ulster Bank
Simon Barry, chief economist at Ulster Bank

"However, civil engineering remains an area of weakness, with respondents reporting a third consecutive monthly decline in activity," Mr Barry added.

Taoiseach Leo Varadkar has previously described allocating more resources for infrastructure as a priority.

"We need to allocate more resources for infrastructure and capital spending, because we need to increase the economy's capacity to grow and meet the needs of our young and growing population," Mr Varadkar said in an interview earlier this year.

"At the same time, we need to increase capital spending in a planned and measured way, rather than doing it too quickly which could drive up the cost of building, and would mean getting less from more."

In the summer economic statement, Mr Varadkar's Government committed to increasing infrastructure spend by €500m a year in the period 2019-2021. Finance Minister Paschal Donohoe said there was need to address "capacity constraints" that were emerging in the economy.

The PMI indicates that housing activity grew at the same pace in August as it did the previous month. Growth in the commercial sector slowed slightly, while the pace of decline in the civil engineering sector quickened.

"While the overall story remains one of continuing construction sector expansion, the latest PMI readings suggest that momentum behind the recovery has slipped a little - a trend that bears watching in the months ahead," Mr Barry said.

But he added that there was a "very healthy" pattern of new orders, helping to underpin rapidly rising demand for labour in the sector. Growth in new orders remained strong, though it was slower compared to July.

"As was the case last year, most [two-thirds of] firms see no change in activity over the coming year as a result of Brexit, with broadly similar proportions of respondents expecting activity to be boosted or reduced over the next 12 months," Mr Barry added.

The Ulster Bank report said sentiment in the sector has improved, with the level of optimism increasing compared to July. Increased confidence in the sector itself and the economy were identified as factors behind that, as well as a growth in new work.

Other trends include a sharp rise in input costs, fuelled by inflation in raw materials. However, the weakness in sterling helped ease the pressure as items sourced from suppliers in the UK became cheaper.

The report said suppliers' delivery times lengthened at a "considerable" pace in August, reflecting raw materials shortages.

Irish Independent

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