Rising builder confidence despite surprise jump in construction inflation 

BNP Paribas index: Building sector contraction is slowing and order books and materials purchase have picked up markedly

The proportion of construction firms saying they expect to be busier in 12 months’ time is at its highest level in more than a year, according to the BNP Paribas Construction Activity Index. Picture: Denis Minihane

The downturn across Ireland's construction sector stabilised in February on the back of growth in new orders despite continuing difficulties within the housing sector and a surprise jump in inflation.

The proportion of construction companies saying that they expect to be busier in 12 months’ time is at its highest level in more than a year as builders registered strong employment growth and the first uptick in input buying since May, according to the BNP Paribas Construction Activity Index.

The overall reading of 49.8 in February remained below the neutral 50.0 threshold but was up from the 47.7 reading in January. It was the first registered upturn since last March and linked by firms to strengthening project pipelines and better underlying demand conditions.

Within the construction industry, the commercial sector showed growth last month while the housing and civil sectors both contracted though the rates of reduction eased to four- and 11-month lows, respectively.

"The ‘green shoots’ in our last PMI strengthened further in February," said John McCartney, director and head of research at BNP Paribas Real Estate Ireland. 

The pace of contraction continued to slow leaving construction effectively unchanged in the month. More importantly, the forward-looking data are pointing in a distinctly positive direction.

February data was also indicative of a renewed uptick in input buying, breaking the prior eight-month sequence of decline.

Where firms did purchase inputs, they were again faced by delivery delays. Supply chain disruption remained the main factor causing longer lead times. However, while marked, the latest deterioration in vendor performance was the least pronounced since January 2020.

On a more negative note, cost pressures faced by Irish construction companies worsened in February. Following two months of easing, the rate of cost inflation re-accelerated from January. The same was the case for subcontractor rates which increased at the fastest pace in three months. 

'Materials purchases have picked up markedly and builders are taking on additional staff at the fastest pace in a year,' said John McCartney, BNP Paribas. File picture

Despite this, new order books are expanding with building firms appearing to be confident that this will be sustained. 

The proportion of construction companies saying that they expect to be busier in 12 months’ time it at its highest level since February 2022 — a trend that is also evident in the manufacturing and services PMIs.  

"Consistent with this, materials purchases have picked up markedly and builders are taking on additional staff at the fastest pace in a year," Mr McCartney said. 

"Although residential activity eased slightly, the pace of contraction has softened considerably. This aligns with other positive indicators in the sector," he said. 

"The Dublin Housing Supply Coordination Task Force counted 18,600 new dwellings under construction in the capital at the end of September 2022, and further 3,488 have been commenced in the capital since then — a 42% year-on-year increase. 

"Meanwhile, 2023 is set to be the biggest ever year of warehouse construction in Dublin, and potentially the biggest year for office building since 2008.”

However, concerns remain about the level of housing construction activity. Recent figures from the Central Statistics Office (CSO) shows a sharp drop in the number of apartments granted planning permission.

The total number of apartments granted planning permission last year was 16,723, a drop of 36%.

"Changes to applications processes for Strategic Housing Developments (SHD) and related issues in An Bord Pleanála in 2022 may impact the number of planning permissions granted over recent quarters,” the CSO said.