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Construction activity slows for second month in a row

By December 13, 2022No Comments

Activity in the construction sector here continued to slow down last month, the second consecutive month a decrease was recorded.

The latest fall in the BNP Paribas Real Estate (BNPRE) Ireland Construction Total Activity Index was solid and the fastest since July.

There was a particularly sharp acceleration in the pace of decline in housing activity.

“After slowing this summer, residential activity stabilised in September and October,” said John McCartney, Director & Head of Research at BNP Paribas Real Estate Ireland.

“But a re-acceleration of input cost inflation, along with slower house price growth, intensified viability challenges in November. This contributed to a sharp contraction in residential activity.”

Civil engineering also saw a marked fall during the month, but commercial building activity, on the other hand, contracted at a much slower rate.

BNPRE said new orders and a market slowdown were the reasons behind the fall in activity, with new orders also falling.

“New business decreased for the eighth month running, and at the fastest pace since August,” it said.

“Input costs continued to rise sharply, with the rate of inflation quickening in November as more than 47% of respondents signalled an increase over the month.”

“Across the board inflation was reported by a number of firms, while others pinpointed rises in energy and fuel prices as having a particular impact on their cost burdens.”

There was also a reluctance to recruit additional staff during the month, with employment levels more or less flat, despite expansion over the preceding three months.

Supply chains lead times lengthened again amid renewed disruption.

BNPRE said the outlook for housing completions remains positive in the short-term, however.

“Our 28,000 forecast for 2022 should be attained, comprehensively surpassing Government targets,” Mr McCartney said.

“And pipeline figures suggest that 2023 will see continued strong completions. However, the November PMI data indicate that the flow of new projects has tapered-off.”

“In particular, new orders slowed for the eighth successive month and, reflecting this, employment growth stalled.”

“The reduction in early-stage building work is dragging on overall activity and threatens to impact on housing completions later in the cycle.”

He added that given the time it has taken for residential completions to reach current levels, any prospect of back-sliding is concerning.

Knock-on impact

“We have had strong construction inflation for two years now,” Mr McCartney told Morning Ireland.

“The cost of building is increasing rapidly and at the same time we’re experiencing a moderating trend in house price inflation and, although that’s a welcome thing, for builders the problem is the margin gets squeezed form both sides,” he explained.

He said the 28,000 completions this year was a virtual certainty – which is in excess of the Government’s targets – but the problem was that ‘housing starts’ had fallen back, which would have a knock-on impact down the track.

“What we’re seeing is a slightly paradoxical situation where delivery of completed product remains strong and probably will do for the next 18 months, but behind that we’re seeing a slowdown in early stage activity.”

“That could cause us to fail to meet our targets in 2024, but I wouldn’t say it’s inevitable just yet,” Mr McCartney concluded.

Article Source – Construction activity slows for second month in a row – RTE

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