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Tue May 17 2022

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Irish construction sector voices Brexit fears

9 Sep 19 The potential impact of Brexit on the Irish construction sector has contributed to a sharp drop in confidence regarding the 12-month outlook.

The main PMI figure rose to 53.7 in August
The main PMI figure rose to 53.7 in August

The monthly Ulster Bank Construction Purchasing Managers’ Index (PMI) survey found that sentiment was only just in positive territory, and the lowest since November 2010.

The Irish construction sector experienced a solid rise in activity in August, though the growth in new orders slowed. The main PMI figure – a seasonally adjusted index designed to track changes in total construction activity – rose to 53.7 in August from 51.4 in July. This marked the first pick-up in the rate of growth in four months, with construction activity increasing at a solid pace.

The rate of growth in new orders softened to the weakest since February 2015. While some panellists indicated that underlying demand remained firm, others pointed to delayed decision-making among clients.

Simon Barry, chief economist Republic of Ireland at Ulster Bank, said: “Growth in Irish construction activity re-accelerated in August, according to the latest results of the Ulster Bank Construction PMI survey. The rate of overall expansion picked-up from July’s six-year low as the headline index rose from 51.4 in July to 53.7 in August, in the process halting a three-month sequence of deceleration. The improvement reflected better performance across the three main subsectors. A welcome re-acceleration in housing activity saw it record the sharpest increase in activity, thus remaining the strongest performing category last month. Commercial activity also continued to grow solidly, with the Commercial PMI rising to a five-month high of 55.1 in August from 54.7 in July.

“Civil engineering remains an area of weakness, however, with respondents reporting a twelfth consecutive monthly fall in activity, albeit at a reduced pace in August.”

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Barry said that the pick-up in the August PMI is an encouraging sign that construction growth regained some momentum as the sector completed its sixth year of recovery. “However, there are also reasons to maintain a somewhat cautious view about the sector’s near-term prospects,” he said. “New orders moderated further, with the August reading marking the slowest pace of new business growth in four and a half years. In turn, the ongoing cooling in order flows is underpinning slower – but still positive - growth in demand for construction workers, with the pace of job creation easing to a near six-year low in August.”

He added that confidence about the coming year fell sharply in August, leaving the Future Activity Index at its lowest level since 2010. “The slippage in sentiment largely reflected worries about Brexit impacts, with some firms reporting that Brexit uncertainty is impacting work pipelines due to delayed decision-making among clients.” 

Employment continued to rise, but the rate of job creation was only slight and the weakest since October 2013. While the pace at which input buying rose was sharper than that seen in July, it was still the second-weakest in five-and-a-half years.

Pressure on supply chains was also shown to be less marked in August. Despite lengthening on the back of higher purchasing activity, delivery times increased to the least extent since November 2017.

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