Cuts threaten to create recession in construction sector - report

Housing inflation is predicted to ease markedly this year as a dramatic reduction in government infrastructure spend threatens to plunge the construction industry into recession, analysts have said.

Redundancies in the sector will approach 15,000 for 2003 amid a predicted 8 per cent fall in output from 2 per cent last year, construction costs firm Davis Langdon PKS said in its yearly review yesterday. The slowdown is largely attributable to heavy public spending cuts unveiled in the Minister for Finance's "inept" budget, it insisted.

In a stinging critique of government fiscal policy, Davis Langdon claimed the abolition of tax breaks - which fuelled construction inflation at the height of the boom - has pulled the rug from beneath the sector at the worst possible moment.

As a result, the rate of increase of house prices is likely to slow as contractors are forced to compete for a smaller pool of business. However, underlying increases in the cost of land make it unlikely that prices will actually diminish.

Commercial tenders are, in contrast, set to fall by 5 per cent, said Mr Michael Webb, managing partner of Davis Langdon.

Job losses are likely to be heaviest in civil engineering, which is almost entirely dependent on Government projects. Outlay on engineering is expected to dip 8 per cent in 2003, Mr Webb warned.

Housing construction comprises 50 per cent of total sector output. But government spend accounts for 45 per cent of general construction, including commercial development, retail and industrial building, hospital, school and university building.

Sustained cooling in the economy has eased construction inflation, handing the Government a unique opportunity to accelerate the National Development Plan at a much lower cost than previously predicted, according to Mr Webb.

"The reduction in real level of prices will mean value for money for such investment," he said.

The Construction Industry Federation (CIF) seized on the review, urging the Government to embark on an ambitious programme of borrowing to fuel infrastructure investment.

The CIF's annual report due to be published within weeks, is expected to predict job losses on the same scale as those forecast by Davis Langdon.

House prices climbed by 20 per cent last year and are set to stay ahead of inflation for the first six months of 2003, according to estate agents Sherry FitzGerald.