Building sector continues to shrink

THE Irish construction sector continues to shrink rapidly on all fronts and is expected to decline further with almost half of those still engaged in the sector expecting to be engaged in less work this time next year.

The Ulster Bank Construction Purchasing Managers’ Index, a seasonally adjusted index designed to measure the overall performance of the construction economy, rose to 32.9 in April, from 28.1 in March, but remained below the no-change mark of 50.0 that divides expansion from contraction. The data for April signalled a further deterioration of conditions in the construction sector. Employment declined substantially, while the falls in activity and new business remained sharp.

Ulster Bank economist Lynsey Clemenger said that while the rate of contraction remains significant, the decline in commercial activity appears to have bottomed out.

“This is a welcome positive. However, activity will remain subdued for the foreseeable future. The housing index is now back at late-2007 levels, while civil engineering is likely to deteriorate further in coming months. On the employment front, the rate of decline also seems to have levelled off. However, as it is a lagging indicator, any marked improvement is unlikely soon,” she said.

“As early signs of stabilisation, albeit tentative, become evident abroad, the Irish construction sector may be past the worst. Nevertheless, it will be some time before activity ceases to contract and the employment situation improves.”

The housing sector was the worst performing of the three monitored categories in April and Ms Clemenger said, despite the pace of decline easing to its weakest since August 2007, it remained substantial. The smallest reduction during the month was registered in the commercial sector, although the contraction was still considerable. Activity on civil engineering projects fell sharply. Civil engineering activity has decreased continuously since December 2007.

“Although new business fell in April at the slowest pace since last November, the rate of contraction was still considerable. The wider economic downturn impacted negatively on demand, while ompetition for scarce new business increased,” she added.

Employment decreased at the fourth-fastest pace in the series’ history in April as constructors reacted to lower activity requirements and attempted to cut costs.

On a bright note for would-be home buyers, input prices fell at the second-fastest pace in the history of the survey, extending the current period of decline to eight months. Increased competition among suppliers was the principal reason for the reduction.

As workloads continued to fall in April, construction firmsreduced purchasing activity further. “The outlook for activity remained negative in April as companies expect the current economic downturn to continue. The level of pessimism remained marked, with more than 44% of respondents forecasting lower activity in a year,” she added.

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