Some recent newspaper headlines regarding the Irish economy, and in particular the Irish property market, have raised the spectre of a sharp economic slowdown.
On the basis of reported economic data, these headlines appear to be sensationalist and based on speculative opinion rather than hard facts.
The overall economy has unquestionably slowed down but, so far, economic growth has remained quite strong. Furthermore, even at this slower pace of growth, the Irish economy continues to be one of the fastest growing economies in Europe.
Forecasts for euro-zone economic growth in 2003 have now been pegged pack to an anaemic 1 per cent, which compares with growth forecasts for the Irish economy ranging from a very respectable 3 per cent to as high as 6 per cent.
With regard to the construction and property market, the predictions of an imminent market setback sit uneasily with the recent share price performance of CRH, the country's largest building materials producer.
Since the announcement of its financial results for 2002, the share price has recovered from the recent low of just more than €11 to a current level just above €13. This is still well below its one-year high of around €20, but it is a creditable recovery in the current uncertain environment.
CRH's Irish operations performed very well in 2002. The residential construction market was very strong as investors returned to the market, leading to a substantial increase in residential construction activity. New home completions are now running at an annualised rate of 50,000 units and there is little sign of any imminent slowdown in the pace of construction.
In contrast, the non-residential sector did weaken quite sharply during 2002. An excess supply of office space and an easing in demand led to a sharp slowdown in commercial property developments. In the absence of a global economic upturn, this weak state of affairs is likely to persist for 2003 and probably into 2004 as well.
The slowdown in commercial property developments was not carried through into infrastructural activity, which remained strong throughout 2002. The single largest component of the infrastructure programme is the National Development Plan, under which a €27 billion spend is forecast in the 2000-2006 period.
A broad range of projects is under way, including the Dublin Port Tunnel, Luas Light Rail and numerous road contracts. Despite the pressures on the public finances, the pipeline of activity remains strong for 2003.
Over the medium term, all political parties are supportive of such infrastructural spending in order to increase the growth potential of the economy and eliminate bottlenecks.
Delays in beginning some of these projects seem likely given budgetary pressures. Nevertheless, investment in the Republic's infrastructure is likely to be a positive feature of economic activity over the medium term.
On balance, the outlook for the Irish construction sector is a long way from the boom conditions that prevailed at the height of the Celtic Tiger. However, with interest rates low and pockets of strength in infrastructural investment and housing, activity levels seem set to remain moderately positive over the medium term.
Therefore, CRH's Irish operations should continue to deliver a growing stream of revenues over the medium term.
Of course, Ireland is now a much smaller proportion of CRH's operations and accounts for approximately 15 per cent of the company's total operating profits. The United States is CRH's most important region and accounts for 60 per cent of operating profits.
Whilst the US economy has slowed down, CRH has a broad geographical spread of activities and the sectors of most relevance to CRH, such as housing construction and road building, have been quite strong.
One factor that has generated concerns regarding CRH has been fears regarding its potential exposure to asbestos.
In September 2002, CRH announced that it had settled (out-of-court) a number of asbestos-related claims. This led to a knee-jerk reaction downward in the share price given the unpredictability of liabilities.
This was not too surprising given the context where companies such as Hanson, ABB and Royal & Sun Alliance had to revise up sharply their exposure to asbestos-related claims during 2002. Their share prices were severely hit when this news emerged.
Nevertheless, it does seem clear that CRH's exposure is very limited and, even in a worst-case scenario, the financial damage would be minimal. For example, Hanson has 75,000 claims outstanding compared with CRH's 250 claims outstanding.
The stock market seems to have recognised that the scale and nature of CRH's exposure is minimal, although complete elimination of all exposures would probably have some positive impact on the share price.
Although the Irish construction sector is experiencing a slowdown, the medium-term picture remains very healthy. This, combined with CRH's broad geographical mix and the realisation that asbestos exposure is not a problem, should enable the shares to build on their recent relative out-performance.
