A survey of the construction industry indicates that the sector ended 2023 on a weak note, with activity dropping in December for the sixth month in a row.

The BNP Paribas Real Estate Ireland Construction Purchasing Managers' Index (PMI) recorded 45.1 – slightly better than 44.5 in November, but still well below the key 50 mark. Any figure below 50 means that activity fell.

The biggest drop was in the commercial sector (42.8). Housing activity (45) also fell, but the decline was not as steep as in November.

Business mood brightens

Employment in the sector returned to growth in December, however, after having fallen for the first time in 11 months during November. BNP Paribas said that the hiring of additional staff partly reflected confidence in the outlook for 2024.

The report shows that business sentiment rose to a seven-month high, amid some hopes that new projects would be secured in 2024.

More than 34% of respondents predicted a rise in activity over the coming 12 months, compared with 15% that were pessimistic.

Higher charges by suppliers resulted in a further sharp increase in input costs during December, although the rate of inflation eased from November, and was below the 2023 average.

Squeezed margins

John McCartney (director and head of research at BNP Paribas Real Estate Ireland) highlighted the plunge in commercial activity as the weakest reading in a decade – leaving aside COVID lockdowns and a decline in August last year.

“Commercial values have inevitably been impacted by higher interest rates, and this has been compounded by soft occupational demand in some sectors, particularly offices,” he said.

“At the same time, input costs have continued to rise, albeit at a declining pace. The net effect has been squeezed development margins, stemming the flow of new project starts,” McCartney stated.

Although residential activity slowed again, he pointed to an 18% rise in housing starts between January and November as suggesting a positive outlook for the sector.