Reliance on construction 'unparalleled'

There is no risk of a collapse in the construction sector, but the economy's present level of exposure to it is "unparalleled", according to Goodbody Stockbrokers.

Even a moderate slowdown in the sector would cut growth in economic output from 5.7 per cent this year to 5 per cent next year and 3.2 per cent in 2008, according to the stockbroker's economist, Dermot O'Leary.

Joe Gill, the head of research at Goodbody, said, however, that its analysis should calm fears of a property-related hard landing for the economy. "Every time I meet someone from an international institution, they're wondering what month will the Irish economy collapse . . . A growth figure of 3 per cent in 2008 should be a very reassuring number for those people."

Goodbody's "moderate slowdown" scenario predicts housing completions to slow from 92,000 units this year to 77,000 in 2008 and 68,000 by the end of this decade.

But in its "worst case" scenario, the stockbroking firm says that housing completions would fall from an expected 92,000 this year to 70,000 next year and 60,000 in 2008. Under the latter scenario, economic growth would fall to 2.6 per cent next year and 2.5 per cent in 2008, Mr O'Leary said.

"The overall effect would be to drop about 3 percentage points off growth," he said.

But the Republic's performance under this scenario would still be better than the European Union average, Mr O'Leary added.

Some 23 per cent of the Republic's economy is dependant on the construction sector, according to the findings of the Goodbody research.

"If you go back 10 years ago, it was only 14 per cent. If we compare this with Europe it's only 12 per cent," Mr O'Leary said.

The research also finds that the economy's recent dependence on the sector is due to residential investment.

"You can't hide it. The economy is very dependant on the sector. But we've laid out reasons why we think it won't collapse," Mr O'Leary said yesterday.

However, the average number of persons living in an Irish house stands at 2.8, compared to an EU average of 2.4 persons and Goodbody maintain that this is a sign that the Republic is under-housed relative to the EU.

"We are in a catch-up phase. Household size in Ireland is the highest in Europe and we would expect it to converge to European levels . . . I look on this as a form of pent-up demand," Mr O'Leary said.

A pick up in investment under the National Development Plan (NDP) will also benefit the sector, he added.

"Non-residential construction will take up the baton post-2006. Public capital spending remains underpinned due to a significant infrastructure deficit, which the Government is committed to addressing."

On Monday the Economic and Social Research Institute (ESRI) warned that falling house prices in the US could cause its economy to slow significantly, prompting a 7 per cent fall in the size of the Republic's economy and the loss of 90,000 jobs.