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News : Irish Last Updated: May 22, 2009 - 5:44:05 AM

Irish Construction output at 23% of GNP in 2007; 416,000 employed in construction related activity - 19% of workforce; Up to 30,000 job losses by 2009
By Finfacts Team
Sep 25, 2007 - 6:31:00 AM

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After 13 years of continuous growth, Irish construction activity peaked in 2006; it is expected to contract modestly by 1.5% in 2007. Construction output will fall further in 2008 before returning to positive growth in 2009.

These are the main findings and predictions detailed in the report - Construction Industry Review 2006 and Outlook 2007-2009. It is an independent economic assessment by DKM Economic Consultants of construction activity and prospects commissioned each year by the Department of the Environment, Heritage and Local Government.

The estimate for Irish construction output this year represents 22.6% of GNP and 19% of GDP, when measured in gross output terms. The construction to GDP ratio is the second highest proportion (after Spain) and ranges from less than 8% in Sweden to over 21% in Spain and with an average ratio of around 12% in Western Europe and less than 11% in the UK.

Among the other key findings and predictions highlighted are that:-

  • The value of construction output in 2006 was €35.5 billion which represents almost 24% of total GNP;

  • The Irish construction labour force in Q2, 2007 is estimated at 415,900 persons, including an estimate for indirect employment and assuming an unemployment rate in line with the national average (4.6%).

  • This estimate corresponds to almost 19% of the national labour force of 2.21 million (sa). There were 126,100 directly employed in construction in early 1998 compared with 282,000 in late 2006.

  • Housing output peaked at 88,219 units in 2006 but is expected to reduce to 77,000 units in 2007 and 60,000 units in 2008;

  • Private non-residential construction investment grew by 20% in 2006 and will grow by an additional 29% in 2007 with all components of this sector (e.g. office and retail space, hotels and tourism infrastructure, agricultural buildings) performing well at present.

  • Public Sector investment in new buildings and infrastructure increased by 2.7% in 2006 and the current level of investment here will be maintained in coming years under the Government's programme of capital investment under the National Development Plan 2007-2013;

  • Overall construction inflation is expected to be at 3.7% in 2007, falling behind the general rate of construction inflation for the first time for many years;

DKM says that private non-residential construction continues to perform strongly for the third year in a row.

Public sector construction benefits from the substantial public sector funds allocated for the period 2008-2009 in the National Development Plan 2007-2013, and for Transport 21. Over 70% of Exchequer funds have been allocated to the four largest Government departments covering transport, housing, water services, educational and hospital building projects.

DKM says there is scope to limit the impact of the contraction in residential construction over the medium-term on the construction sector provided the Governmen's commitments to the delivery of essential infrastructure are honoured in a timely and cost-effective manner. The base case projection for construction output forecasts a decline (-6.2%) in 2008, due to the decline in new housing output, followed by an increase of similar proportions (+6.2%) in 2009.

The recovery in 2009 reflects a stabilisation in housing output and an acceleration in the volume of construction output from civil engineering projects, most notably in public transport and airports.

While the magnitude of these impacts is difficult to predict, DKM says that the projected reduction in housebuilding could potentially reduce direct employment in housebuilding by around 30,000 persons by the end of 2009. However, the actual reduction in employment could be less if some unemployed housebuilding workers transfer to the non-residential and RM&I (repair, maintenance and improvement ) sectors of the industry or indeed to other sectors in the economy. As such construction employment could decline to 273,000 by Q4 2007, with a further reduction to around 260,000 persons from current levels (280,300 persons employed) by Q4 2009. This represents a net reduction in construction employment of around 20,000 persons over the two years. There are also likely to be indirect job losses in the businesses and services supplying the housebuilding industry. In these circumstances the unemployment rate would begin to edge upwards. While these are just indicative estimates, much will depend on the pattern of new build and the rate of employment growth across the economy as a whole.

While acknowledging the significant challenge for the industry represented by the transition from a period of rapid growth to lower levels of activity the report welcomes the rebalancing of activity within the industry which is now taking place. In particular DKM states: "The easing back in terms of housing supply, together with more sustainable levels of prices and lending, should give rise to a more balanced and stable market over the medium-term. The current easing of house prices is a welcome development and should enable potential purchasers to enter the market who may have been prevented from doing so in the past"

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