The Irish construction sector is set to slow gradually over the next two years but will remain a key component of the Irish economy, according to a report issued today by Goodbody Stockbrokers.  

While the report, by Goodbody Stockbrokers’ Chief Economist Dermot O’Leary, predicts an adjustment in the residential housing market, it emphasises that the construction sector is made up of several components which will move in different directions over the next couple of years, with increased activity in the non residential sector.

The overall result will be that the construction sector will remain a key component of the Irish economy going forward. The Goodbody Stockbrokers’ report predicts continued strong economic growth of 5.7% in 2006 and 5.6% in 2007, and expects growth to slow somewhat during 2008 to 3.2%, still ahead of the EU average.

The report outlines the fact the construction sector in Ireland accounts for 23% of GDP compared to a 12% EU average. Goodbody Stockbrokers’ Chief Economist Dermot O’Leary says “Residential construction has been the key driver of the construction sector.  Completions reached a record level of 86,000 units in 2005, representing the 11^th record year of output, and are now running at a rate of almost 21 units per 1000 population, relative to only 5 units per 1000 in the EU. 

However, Ireland’s housing stock remains quite low at 410 units per 1000, relative to the EU average of 465 units.  Therefore, Ireland has been in catch-up mode in recent years.  This is a trend we expect to continue, with completion levels set to exceed the rest of Europe up to the end of the decade.”

Dermot O’Leary adds “Non-residential construction should take up the baton post-2006.  Public capital spending remains underpinned due to a significant infrastructure deficit, which the government is committed to addressing.  Private non-residential construction will be supported by strong population dynamics, accommodative monetary policy, increasing share of services employment and inward FDI.  We estimate that construction industry output should grow once more in 2007 (4.9%) before contracting modestly (-1.1%) in 2008.”

Goodbody Stockbrokers’ forecast suggests that new residential building activity will peak this year at 92,000 and remain at relatively high levels in 2007, with 88,000 units expected to be completed.  It predicts that completions will fall to 77,000 units in 2008, as supply levels start to fall to an average of 68,000 through to 2011, in line with the fundamental demand drivers such as population growth, household sizes and second/holiday homes. 

The report further concludes that the non residential sector will have an important role to play in how the economy performs during the slowdown phase, but predicts that a soft landing is the most likely course for the construction industry over the coming years.

Download report.