Irish Independent

Worst of fall-off in building over, but questions remain

- Ellie Donnelly

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.”

 ??  ?? Simon Barry does not think easing lending rules will help relatively quickly when the restrictio­ns start to get eased,” he said.
However, with a requiremen­t for social distancing measures to be put in place on sites, it remains to be seen whether full productivi­ty will be possible in the short-term.
While there is going to be merit in providing support “for the economy in general, including particular sectors such as constructi­on”, Mr Barry is not convinced an easing of current mortgage lending rules, which means a bank can only lend 3.5 times a person’s salary, is the best course of action.
“I’m not fully convinced of that, I think the Central Bank’s own view has been that it is not clear on why allowing people borrow more would
Simon Barry does not think easing lending rules will help relatively quickly when the restrictio­ns start to get eased,” he said. However, with a requiremen­t for social distancing measures to be put in place on sites, it remains to be seen whether full productivi­ty will be possible in the short-term. While there is going to be merit in providing support “for the economy in general, including particular sectors such as constructi­on”, Mr Barry is not convinced an easing of current mortgage lending rules, which means a bank can only lend 3.5 times a person’s salary, is the best course of action. “I’m not fully convinced of that, I think the Central Bank’s own view has been that it is not clear on why allowing people borrow more would

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