Worst of fall-off in building over, but questions remain
LAST month may represent the worst point of the downturn for the construction sector, according to Simon Barry, chief economist, Republic of Ireland, at Ulster Bank.
Activity in the sector collapsed in April as almost all building sites across the country were forced to shut down due to Government measures aimed at limiting the spread of Covid-19.
The latest Construction Purchasing Managers’ Index from Ulster Bank reported a reading of 4.5 for the month, well down on the reading of 28.9 in March. Anything below 50 indicates a contraction in activity.
It comes as the Construction Industry Federation said 71pc of its members are “very concerned” at the impact of the pandemic.
With work at building sites set to resume from May 18, Mr Barry said the industry has “a number of things going for it”.
“As a sector it’s used to dealing with interruptions in its activity, for reasons as basic as seasonal variations and weather.
“There is a flexibility to the way the sector operates, which means that it does have the potential to get going make anybody better off,” Mr Barry said, adding: “I don’t see that as the best way to target support for homebuilding or construction.”
In order to stimulate the economy there is “undoubtedly going to have to be higher levels of borrowing”.
However, the actions of central banks around the world mean government borrowing costs are “at extraordinarily low levels,” he said.
Meanwhile, the economic fall-out here from the coronavirus will be “fundamentally different” compared to the previous downturn in 2008 .
“Back then, the [Irish] economy starting point was one of a fundamental imbalance. There was too much construction happening, there was too much lending to support construction, and house prices were significantly overvalued,” Mr Barry said. The country then had to go through a “painful correction”.
“This time, we are not starting from a position of any imbalance. [The recovery] is more closely linked to very specific public health driven policy to try contain the virus and the natural desire to try and release the economy back into something which can form the basis of a recovery.”