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Wed September 30 2020

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Ireland suffers sharp fall in new orders

12 Jul 11 The Irish construction sector moved further away from recovery at the end of the first half of 2011, as activity and new business both contracted at sharper rates than in the previous month.

As a result,  contractors made further reductions to staffing levels and buying, according to the Ulster Bank Construction Purchasing Managers’ Index (PMI). The index decreased to 40.5 in June, from 41.1 in May, to signal a further steep decline in activity. In addition, the rate of contraction accelerated for the fourth successive month and was the  sharpest since May 2010.

Commenting on the survey, Simon Barry, chief economist Republic of Ireland at Ulster Bank, said: “There were no signs of any imminent improvement in the Irish construction sector according to the  latest reading of the Ulster Bank Construction PMI. In fact, the rate of deterioration in activity accelerated for the fourth month running in June as the PMI fell to its lowest level in over a year. In fact,  activity levels have now fallen in every month since June of 2007 meaning that the construction slump  has now entered its fifth year."

There was a slight easing in the pace of decline in housing and commercial activity last month, he added. But with close to 40 in each case - well below the expansion threshold of 50 – the two sub-sectors remain in contraction mode. “But, as has been the case for most of the past year, the  weakest sub-sector is civil engineering which continues to contract at a particularly sharp pace. As we  look to the second half of the year, near-term prospects for the sector as a whole don’t look bright, as  incoming orders for new business in June fell at their fastest pace since late last year. Employment,  too, continues to fall away, though the pace of decline in June was the slowest in almost four years.”  Looking further ahead, over 40% of firms expect activity levels to be higher in a year, although this is down on the 46% of firms which held that view last month.

Anecdotal evidence linked the overall reduction in  construction activity to a drop in new business, found the research. New  orders decreased at a marked pace in June that was  the fastest in seven months. Panellists indicated that fragile client confidence given weak economic conditions in Ireland had impacted negatively on demand.

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The current sequence of falling employment at Irish  construction firms reached fifty months in June. However, the rate of job shedding eased for the fourth  month running and was the weakest since July 2007.

Higher prices for metals, plastics and oil-related  products were reportedly the main sources of input cost inflation in June. Input prices increased  substantially, although the rate of inflation eased to the weakest since January. A further reduction in new business was the key  reason for June’s decline in purchasing activity, according to panellists. Input buying fell for the 10th month running, and at an accelerated pace.  

Although optimism regarding future activity levels was  again recorded in June, this largely reflected the  weakness of current economic conditions rather than  expectations of improvements over the coming year. The level of optimism remained solid, despite falling to  the lowest in four months, according to the PCI.

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