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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM

Irish Construction Sector contracted rapidly in July as pessimism increased and cost inflation accelerated
By Finfacts Team
Aug 11, 2008 - 12:55:56 AM

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Source: Markit Economics

The Irish construction sector recorded another substantial deterioration of operating conditions in July. The Ulster Bank Construction Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the overall performance of the construction economy – posted 31.3, from June’s low of 29.4. The latest fall in construction activity was the fourteenth in successive months and largely reflected a shortage of new projects.

Commenting on the survey, Pat McArdle, Chief Economist at Ulster Bank, noted that: “In June, overall activity, new business and employment all contracted at record rates. In July, the new business, employment and expectations indices set fresh lows. While the total activity index recovered slightly, all three sub-components remained well into negative territory indicating substantial rates of contraction in each case.


“The sharp fall in the employment index confirms anecdotal evidence of significant lay-offs around the time of the builders’ annual Summer holidays. The last three months have seen the sharpest falls in the employment index since Autumn 2001. However, back then the index had fallen for about a year whereas now it has been in decline for the best part of two years. The fact that new business also recorded a record low means that further falls in activity and employment are likely.

“Confidence in the construction industry had held up well but plummeted in recent months with respondents citing the credit squeeze and the worsening domestic economy as the principal causes.”


Work on residential projects continued to fall rapidly in July

Of the construction areas monitored by the survey, housing remained the worst performing in July, with activity falling at a pace broadly in line with January’s record. Commercial activity contracted substantially and for the ninth month running. Data pointed to a marked contraction in civil engineering activity, albeit the weakest since January 2008.

Rate of decline in new business continued to accelerate

The trend in new business volumes at Irish constructors remained downward in July, with new work falling at a record rate. Reduced new orders were linked to worsening economic conditions, which some firms attributed to credit market instability. New business has now fallen in each month since April 2007.

Constructors registered record reduction in employee numbers

In response to falling workloads, and reflecting a lack of confidence on the outlook for the future, employment contracted rapidly in the Irish construction sector in July. The rate of decline in staffing levels accelerated for the fifth month running and was a new survey record.

Cost inflation was highest for sixteen months

The rate of cost inflation faced by constructors accelerated sharply to its highest since March 2007.

Firms widely commented on higher prices for oil-related inputs.

Purchasing activity fell rapidly at constructors in July, largely in response to reduced new order levels and lower activity requirements. Supplier delivery performance improved at a record pace, reflecting easing capacity pressures at vendors.

Data signalled marked degree of negative sentiment

Irish constructors were at their most pessimistic in the survey history in July. More than 54% of firms expected activity to be lower in a year’s time, with negative sentiment linked to the continuing impact of the global credit squeeze.

Source: Markit Economics

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