Growth in Irish construction slows

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Substantial price pressures continued to impact the sector, while business confidence slumped according to the latest figures from the BNP Paribas Real Estate Ireland Purchasing Managers’ Index (PMI).

The headline Total Activity Index posted 51.5 in May, remaining above the 50.0 no-change mark but falling from 52.5 in April to signal a slower pace of expansion. The rate of growth in activity has now softened in three successive months. While some companies were able to continue raising activity, others reported that strong cost pressures had hit demand and led to lower workloads.

Sector data suggested that the main source of the slowdown in growth in May was the commercial category, where activity increased at the softest pace in the current 13-month sequence of expansion. The housing category bucked the wider trend and posted a sharper increase in activity during May. Meanwhile, civil engineering work continued to fall, but at a softer pace.

New orders decreased for the second month in a row. The fall in May was only modest, but stronger than seen in April. According to respondents, strong cost pressures was the main reason for declining new business, with some customers postponing projects until prices begin to come down.

The rate of input price inflation remained elevated, with close to three-quarters of panellists reporting a rise in their cost burdens over the month. Among the items most widely reported as having increased in price were copper, fuel and oil. Some firms indicated that the war in Ukraine was behind price rises. Meanwhile, subcontractor rates rose at the sharpest pace on record.

As well as hitting customer demand and causing a slowdown in growth of activity, sharp price rises also led to a slump in business confidence midway through the second quarter. Sentiment was at its lowest level since October 2020, with any lingering confidence largely reflecting hopes that economic conditions will start to improve soon.

The main positive from the latest survey was a marked and accelerated increase in employment as firms made efforts to rebuild capacity. The rate of job creation quickened to the fastest since January.

Purchasing activity also continued to rise in May, but the rate of expansion eased for the third successive month and was the weakest in the year-to-date. While some firms indicated that they were looking to rebuild inventories, others were put off from purchasing by high material prices.

Construction firms continued to face severe delivery delays due to material shortages, shipping issues, the war in Ukraine and Brexit. Lead times lengthened to a greater extent than in April.

John McCartney, director & head of research at BNP Paribas Real Estate Ireland, said: “Conflict in the Ukraine and Covid restrictions in China ensured a further rise in materials costs during May.

“This fed into weaker demand for construction services and a fall in new orders for the second successive month. However the overall picture remains broadly positive. Construction activity continued to expand last month, particularly in the residential sector. Moreover, construction firms remain quite upbeat about the future; The business expectations index stood at 52.7, indicating that more firms expect activity to increase than contract over the next 12 months. In a further sign of confidence, survey respondents hired new staff at the fastest rate since January. Taking the data as a whole, it appears that construction firms have been able to pass a proportion of higher input costs onto the consumer, and are confident that this can continue.”

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