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Thu November 14 2019

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Irish construction slips after six years of growth

14 Oct Ireland’s construction sector has experienced its first decline in construction activity since August 2013, though housing has continued to grow.

The latest Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to track changes in total construction activity – fell to 48.3 in September from 53.7 in August. Figures above 50 indicate growth.

Ulster Bank chief economist Republic of Ireland Simon Barry said that the results showed a marked loss of momentum in September, with the decline reflecting weaker activity patterns across the commercial and housing sectors.

“Commercial activity fell in September, in the process halting a six-year run of uninterrupted growth,” he said. “More encouragingly, housing activity continues to grow, with its PMI reading of 52.9 still comfortably above the expansion threshold of 50. Housing remained the strongest sub-sector for a 9th month in a row, though the pace of residential activity growth did ease to a four-and-a-half-year low in September.”

Civil engineering firms posted their thirteenth consecutive monthly fall in activity.

Barry added: “New orders moderated further last month, with the September reading marking the slowest pace of new business growth in over six years as many respondents reported that Brexit uncertainty is negatively weighing on customer demand. In turn, the ongoing cooling in order flows continues to underpin slower – but still marginally positive - growth in demand for construction workers.

“Confidence about the coming year improved slightly last month, but the Future Activity Index remains near August’s nine-year low as anecdotes from the survey highlighted that concerns about Brexit impacts were the key factor weighing on sentiment regarding the sector’s prospects for the incoming year. Recent manufacturing and services PMI survey results have been signalling a deterioration in activity trends in some key areas of the Irish economy in recent months, largely reflecting the combination of weaker global growth (especially in the factory sector) and growing risk of a no-deal Brexit. The September results of the construction equivalent are suggesting that softer trends in the internationally-traded sectors of the economy are showing signs of spilling over into construction activity.” 

Looking forward, optimism among Irish construction companies picked up slightly from August's near nine-year low during September, with around one-quarter of panellists expecting activity to increase over the coming year. That said, the overall degree of optimism was historically subdued, with Brexit uncertainty cited as the principal negative factor weighing on year-ahead outlooks. On the other hand, positive sentiment was linked to forecasts of an improvement in economic conditions over the next 12 months.

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