Construction sector growth stalled last month

The rate of growth in the construction sector had a sharp drop in February with activity down across most areas, according to the latest Ulster Bank construction index.

The index averaged 52 in February, which is down from the 57.1 posted in January. Any reading above 50 denotes expansion.

“The February results of the Ulster Bank Construction PMI survey point to a notable loss of momentum in Irish construction activity last month.

The headline PMI index remained above the expansion level of 50 in February, and thus continues to point to rising activity levels — as it has done for the past year and a half,” said Ulster Bank chief economist Simon Barry.

However, the key feature of the February results is another sharp drop in the index which indicates that the pace of growth eased significantly last month.

“This follows the large decline also recorded in the January survey, and takes the growth in activity to its weakest in 18 months,” he said. There was a double-digit growth in house prices last year on the back of a huge ramp up in demand combined with a limited supply of new units.

According to a research paper released by the ESRI last year, the demand for new housing is 90,000 units between this year and 2021. However, the construction of new housing is a record lows with just over 9,000 completions last year. The Government is looking at a number of initiatives to boost the construction sector.

The Ulster Bank index, which shows the weakest reading in an unbroken 18-month growth sequence, suggests that the nascent recovery in the sector is losing momentum.

“The detail behind the headline reading paints a similarly disappointing picture. Weaker activity patterns were reported across all three main sub sectors.

“Housing activity stagnated last month, a marked turnaround from the record rates of expansion recorded in September last year.

“It could be that some of this weakness is linked to higher levels of uncertainty surrounding the housing market outlook related to the recently-introduced Central Bank mortgage lending regulations,” said Mr Barry.

“However, the weakness emerging in the past couple of months has extended beyond housing. Activity has also softened materially in both commercial and civil engineering which should not be as directly-affected by the Central Bank measures, thus pointing to more broadly-based weakness.

“Overall, while construction remains in recovery mode, it is clear the sector’s recovery dynamic has weakened considerably in the early part of this year,” he added.

According to the latest survey, the rate of increase in employment was the slowest since June last year.

The Government will be hoping the slowdown is temporary as it looks to make further progress in reducing the unemployment rate, which now stands at 10.1%.

The Central Bank said last October that it proposed to introduce a loan-to-value limit of 80% for 85% of a bank’s mortgage lending over a 12-month period and a loan-to-income cap of 3.5 times’ annual salary.

Following a consultation period, there was a modification to the 20% deposit proposal with first-time buyers allowed to borrow up to 90% for the first €220,000 of the value of the mortgage.