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June ‘watershed’ as building activity drops

New figures show that activity in the Irish construction sector fell back in June for the first time in 14 months, due to a sharp drop in new business.

The BNP Paribas Real Estate Ireland Construction Total Activity Index, compiled by research group HIS Markit, recorded 46.1 – down from 51.5 in May. Any figure under 50 signals a fall in activity.

The last time the index was below 50 was in early 2021, when COVID-19 restrictions were in place.

Caution on hiring

According to firms surveyed for the report, increased costs and subdued demand were responsible for the drop. As a result, purchasing of materials was scaled back, and staffing levels stagnated, as firms became more cautious about hiring.

All three categories of construction saw reductions in activity during June, with both the commercial and housing sectors posting declines for the first time since the first half of 2021.

The fall in housing activity was only marginal, but civil engineering recorded the biggest decline. 

The rate of cost inflation remained high at the end of the second quarter, despite easing to a 14-month low. Almost two-thirds of survey respondents signalled that their input prices had increased in June.

Continuing high inflation, weaker orders, and signs of a wider economic slowdown meant that more construction firms were pessimistic than optimistic about the next 12 months – the first time this has happened since September 2020.

Rebound fades

John McCartney of BNP Paribas Real Estate Ireland described June as “a watershed month” for construction activity.

“The post-COVID rebound has been fading since February, but the June PMI reflects the first absolute pull-back since pandemic restrictions were lifted,” he commented.

McCartney said that he still expected around 28,000 new homes to be completed this year – an annual increase of 30% – despite the slowdown in residential activity in June.

He attributed the sharper decline in commercial activity to cost pressures, as well as a recognition that the amount of Dublin office developments in the pipeline looked to be enough to meet demand in the near term.