Expert warns crash in Irish construction likely to be biggest on record

The Irish construction industry is likely to have suffered the biggest quarterly crash in activity on record as a result of coronavirus, with output falling by more than 30 per cent, an industry expert has warned.

The extent of the downturn will not be known until next month when the Central Statistics Office (CSO) publishes second-quarter growth numbers for the Irish economy and its constituent sectors.

Ulster Bank chief economist Simon Barry said it was safe to assume the construction sector here would under-perform international aggregates by some way because of the tightness of restrictions imposed to curb the spread of the virus.

He said the reversal is likely to be similar to that experienced by the UK.

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Figures last week showed construction activity in the UK fell by 35 per cent in the second quarter, compared to a 12 per cent decline in the euro area.

Mr Barry, who compiles Ulster Bank's monthly Purchasing Managers' Index (PMI) for the construction sector, said the historical relationship between the PMI and the CSO's index would suggest that Ireland would be among the weakest countries "in Q2 construction terms".

He said the annual drop is likely to exceed 30 per cent.

At the height of lockdown, Ulster Bank’s PMI, which tracks output, orders and general activity among construction firms here, fell to levels that were below the worst point of the financial crisis in 2009. Separate data showed house completions in April dropped by 73 per cent year-on-year.

Mr Barry noted, however, that euro area aggregates for the construction sector were heavily skewed by the bloc's largest economy, Germany, which only experienced a 4 per cent drop in activity primarily because it did not have as severe a lockdown as Ireland.

“We lost about seven weeks by virtue of the shutdown. That wasn’t the approach taken in Germany, where construction just wasn’t at the centre of the lockdown measures.”

Lost ground

On a more optimistic note, Mr Barry said the sector here was already experiencing a swift bounce back in activity since the lifting of restrictions, and was well-placed to recover much of the lost ground.

Ulster Bank’s latest PMI indicated that activity rose for a second straight month in July, with the sub-index for new orders rising for the first time in five months.

“Construction activity in contrast to other sectors, like say hospitality, is relatively well placed to make up the loss in activity that was suffered during lockdown.”

Mr Barry noted that some 26,000 housing units had been commenced prior to Covid-19. “So there is a significant body of work that is ready to be tackled and ready to be acted on, and ultimately delivered.”