15th May 2023

Key points:

Stronger contraction in activity
Slower rises in new orders, employment and purchasing activity
Input price inflation quickens on the month

Ireland’s construction sector continued to struggle during April amid a sharper contraction in activity and slower rises in new orders, employment and input buying. Little respite was offered in terms of any easing in inflationary and supply pressures. In fact, the extents to which supplier performance worsened and input prices increased were greater than seen in March. Still, firms were optimistic in their outlook for the future.

The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index posted below the crucial 50.0 mark separating growth from contraction in April to signal a seventh successive reduction in total activity. At 48.4, down from 49.5 in March, the latest reading was indicative of the most pronounced reduction in Irish construction activity in three months.

The latest data highlighted a sustained decline in housing activity that was stronger than seen in the previous survey period. Meanwhile, commercial activity increased for a third month in a row, albeit only mildly. According to survey respondents, construction activity was weighed down by a general slowdown in market demand.

Nevertheless, April survey data signalled a sustained uplift in new order inflows at the start of the second quarter of 2023. But, with customers still reportedly cautious about market conditions, the increase was only marginal overall and historically subdued. A rise in workforce numbers of the same magnitude was subsequently recorded in April as companies looked to add to their staffing levels in line with the uplift in sales. As such, the rate of job creation was the weakest in the current four-month sequence. Similarly, firms increased their buying activity in April but at the slowest pace in three months.

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Elsewhere, Irish construction firms continued to grapple with a further lengthening in average delivery times. In fact, the extent to which lead times worsened was the greatest since January.

The rate of input cost inflation has been on a downward trend since its peak in October 2021 but, against this trend, the rate of costs increases picked-up slightly in April. Inflation of the rates charged by sub-contractors also quickened from March. This was despite the most sizeable worsening in their quality since the end of last year. Sub-contractor usage was up for a third month in a row, while availability fell at the sharpest rate in nine months. Firms remained positive in their projections for output over the coming year. Optimism was mainly centred around hopes for a pick-up in developmental activity. That said, the degree of confidence was relatively subdued.

Commenting on the latest survey results, John McCartney, Director & Head of Research at BNP Paribas Real Estate Ireland, said, “Construction trends in April maintained a pattern that has been in place since the start of this year. Overall activity contracted once again. However, the PMI’s leading indicators continued to signal the potential for increased activity. New orders rose again. Consistent with this, input purchases continued to rise, and employment increased for the fourth month in a row. Meanwhile, the proportion of firms expecting to be busier in 12 months’ time rose to 30.2% from 28.6% in March.

“Two unwelcome developments in April were a sharper contraction in residential activity and a pick-up in input cost inflation. The steeper slowdown in new home building is clearly concerning – and somewhat surprising given the sustained rise in residential commencements since last November. The intensification of cost pressures bucked the trend of the last 18 months, but was relatively slight.”

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