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Storms slow Ireland’s construction growth

10 Mar 20 The pace of Ireland’s rise in construction activity slowed slightly in February amid disruption caused by stormy weather and the first signs of business effects from the coronavirus.

The Ulster Bank Construction Purchasing Managers’ Index (PMI) posted 50.6 in February, which remained above the 50.0 ‘no change’ figure and signalled a modest increase in total construction activity. Respondents reporting that adverse weather limited the pace of expansion.

Simon Barry, chief economist Republic of Ireland at Ulster Bank, said that, looking ahead, the global spread of the coronavirus represents a new important source of downside risk to the Irish economy as we look ahead. The mainly domestic-facing construction sector is perhaps less directly exposed to adverse virus impacts than the more heavily trade- and tourism-dependent areas of the economy. “However, it is noteworthy that some impacts on construction are already being felt as some respondents mentioned the outbreak of the virus in China as a factor contributing to delays in deliveries from suppliers,” he said.

Barry said that the latest results of the Ulster Bank Construction PMI survey show a third consecutive monthly rise in Irish construction activity in February. “However, the pace of expansion eased slightly last month as the headline PMI moderated from 50.9 in January to 50.6 in February, with respondents reporting that adverse weather limited the pace of expansion,” he added. The sub-sector detail shows that commercial activity continues to lead the expansion, with the February figures registering a fourth month of positive growth, albeit at a slower pace than in January. Meanwhile, the results on residential activity remained slightly disappointing, with the Housing PMI signalling a second consecutive monthly decline in activity.”

However, the contraction was only marginal and activity likely would have returned to expansion had it not been for the adverse weather last month, said Barry.

“New business continued to rise at a healthy, though slower, rate in February as reduced Brexit-related uncertainty was again cited as a support for new orders,” he said. “Furthermore, firms themselves remain optimistic about the coming year. While sentiment eased back a little last month from January’s one-year high, firms indicated that they were confident that new business would improve over the coming year, with almost 40% of respondents anticipating higher output levels in the coming 12 months.”

New orders increased for the third month in a row during February. The rate of expansion was solid, albeit softer than that seen in January. Respondents pointed to improvements in customer demand, in some cases due to greater clarity around the near-term path for Brexit.

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With new orders increasing solidly again, companies continued to expand their staffing levels and purchasing activity. Employment has now risen in each month throughout the past six-and-a-half years, although the latest increase was the slowest since last October. The rate of growth in input buying also softened in February.

Average lead times from suppliers lengthened markedly, and to the greatest extent for seven months. According to respondents, longer delivery times generally reflected stormy weather during February, but there were some incidences of delays caused by the outbreak of coronavirus in China.

The rate of input cost inflation accelerated to a three-month high during February, with higher prices for raw materials such as concrete and metals mentioned.

Higher insurance costs were also reported, along with unfavourable exchange rate movements.

The 12-month outlook for business activity remained positive, despite easing from January's one-year high. Confidence stemmed from expectations that new orders will continue to rise over the coming year.

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