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News » International » Pace of Irish decline accelerates » published 15/05/2012

Pace of Irish decline accelerates

Activity in the Irish construction sector decreased markedly in April as fragile client confidence led to a drop in new business.

Falling workloads led to reductions in both employment and buying activity, and the rates of decline accelerated in each case.

Meanwhile, confidence among constructors with regards to the year ahead fell markedly.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to track changes in total construction activity – fell to 45.4 in April, from 46.7 in March, to signal an acceleration in the rate of contraction in activity. Moreover, the fall in total activity was the sharpest since last October. Where activity decreased, panellists reported weak economic conditions and a lack of confidence among clients.

Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, said: “The April Ulster Bank Construction PMI confirms that construction remains amongst the weakest sectors of the Irish economy as it entered the second quarter of 2012. While the latest PMIs for manufacturing and services point to expanding activity levels in those internationally-traded sectors, the domestic-facing construction sector continues to contract. Indeed, the pace of decline in construction accelerated in April to its sharpest pace since last October. Weakness early in the second quarter has been particularly notable in the Housing sector which contracted at its fastest pace since September of last year. This leaves Housing as the weakest of the three sub-sectors, though Commercial and Civil Engineering also continue to register ongoing declines.

“The falls in activity levels across the sector reflect a scarcity of new business, as new orders continue to decline. While the falls in new business levels have become much less severe in recent months compared to earlier in the downturn, the persistent declines in workloads have resulted in further job cuts, extending the period of falling employment in the sector to five years. Looking a year ahead, construction firms continue to expect some increase in activity levels. However, positive sentiment fell markedly in April – to its lowest level since October last year – highlighting the fragility of confidence in the sector.”

For the first time in seven months, the reduction in housing activity was sharper than the falls in activity on both commercial and civil engineering projects. The reduction in housing activity was the fastest since September 2011. Commercial activity decreased for the third month running, but at only a slight pace.

After broadly stabilising in March, new orders decreased modestly in April amid reports of fragile client confidence. The rate of decline was slightly stronger than the average for Q1.

As workloads decreased, Irish construction firms lowered their staffing levels accordingly. Employment has fallen in each month throughout the past five years. The latest reduction in staffing levels was solid, and quickened fractionally from that recorded in March.

Respondents highlighted falling new orders as the main reason for a twentieth consecutive monthly reduction in input buying in the construction sector. The latest decline was marked, and the sharpest since September 2011. In spite of falling demand for inputs, suppliers’ delivery times lengthened marginally in April as vendors reduced their operating capacity.

That said, the latest deterioration was the weakest in the current 10-month sequence. Input prices rose again, mainly reflecting higher fuel costs. However, the rate of inflation slowed to the weakest in three months.

A lack of confidence among clients fed through to constructors in April as optimism regarding the year ahead declined markedly. Although still forecasting that activity will increase over the coming 12 months, the level of sentiment was the lowest since October 2011.

MPU

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This article was published on 15/05/2012 (last updated on 15/05/2012).

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