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“Irish Construction Sector Sees Slowest Growth Since 2015 Amid Rising Costs and Easing New Business”

Ireland's Housing Challenge: Rising Construction Costs and the Path Ahead

Construction activity in Ireland experienced a moderate rise in October, marking the slowest pace of expansion since March 2015. While new business growth also decelerated, the rate of job creation surged to a three-month high. Input costs saw their slowest increase since September 2017. The Ulster Bank Construction Purchasing Managers Index® (PMI®), a seasonally adjusted index tracking changes in total construction activity, fell to 52.9 in October from 56.2 in September, indicating the weakest upturn in output in over three and a half years.

Despite this slowdown, total activity has increased for 62 consecutive months, with panellists attributing the rise to improving customer demand. Simon Barry, Chief Economist for the Republic of Ireland at Ulster Bank, noted a significant loss of momentum in October’s growth rate. “The headline PMI slipped to 52.9, marking the slowest pace of growth in over three and a half years,” Barry said. “While the sector remains in expansion territory, the PMI has declined for three consecutive months.”

Barry pointed out that this cooling in construction growth is not entirely unexpected given the rapid expansion during the summer and similar slowdowns in other sectors of the Irish private sector. Both the October manufacturing and services PMI surveys indicated a moderation in growth. “While the headline results are disappointing, we are not overly concerned at this stage,” he added. Barry believes that the recent dip in the Construction PMI may reflect the usual fluctuations in survey results. Other metrics within the survey, such as new orders and firm hiring rates, remain strong, suggesting that a sustained weakening in activity is not underway.

The sector’s outlook continues to be supported by the housing supply shortfall and increased Exchequer capital spending. Barry remains optimistic that the results in the coming months will show signs of renewed improvement. Among the monitored sub-categories, residential and commercial construction activity increased, albeit at slower rates than in September. Commercial construction was the best-performing sector, while civil engineering construction activity declined at the fastest pace in 14 months.

New orders at Irish construction firms increased in October, marking the sixty-fourth consecutive monthly rise in new business inflows. Firms attributed the expansion in new work to new construction projects and increased market activity. The rate of employment growth in the Irish construction sector accelerated in October, with staffing levels increasing for the sixty-second consecutive month and at the fastest pace in three months. Panellists linked the expansion of workforce numbers to increased construction activity.

Purchasing activity growth among Irish construction firms slowed in October to the weakest pace since March 2015. On the price front, input price inflation eased to the slowest rate in 13 months. Panellists cited higher material costs, particularly metals, as the primary drivers of increased cost burdens, which still rose sharply over the month.

Looking ahead, expectations for construction output remain strong, although October’s index reading indicated the least optimism since August 2013. Several survey respondents attributed their confidence to expectations of greater customer orders.

In summary, while the Irish construction sector experienced a slowdown in October, the overall outlook remains positive, supported by strong new orders and employment growth. The sector’s resilience amidst rising costs and easing new business growth suggests a potential for renewed improvement in the coming months.

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