Construction output up strongly in Q1

Output in the construction sector was up 2.1% in Q1, a 7.7% rise. This entirely reflected a rise in output in the non-residential sector, up 0.2% on the quarter and a massive 28.9% on the year.

This was, in turn, driven by a pick-up in the private commercial sector.

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Nonetheless, the latest release indicated sharp falls in residential (-4.2% qoq, -4% yoy) and civil engineering work (-3.7% qoq, -2.6% yoy) in Q1. The sharp fall in residential work is a little surprising given the strength of the PMI surveys in Q1. The PMIs had been indicating strong gains in both commercial and residential work throughout the quarter. Moreover, early year housebuilding statistics showed completions up 1.6% in the year to February.

However, the CSO has cautioned on the interpretation of the construction data given a recent re-weighting and the unprecedented low base from which the series is starting. We therefore cannot read too much into the sectoral split of the headline data.

Less surprising is the continued decline in civil engineering work. Activity in this sector is largely government-led and so will remain weak for the foreseeable future. This year, the government had budgeted for capital expenditure of €3.3bn compared to a €3.4bn spend in 2013. So far this year, capital spending is already 6.9% behind target.

While we cannot read too much into the output data as yet, it appears that the recovery in construction (judging by yesterday’s release and the industry survey data) is being led by the private commercial and residential sectors. As we outlined in our January issue of Davy Economics Monthly, the recovery in construction has the potential to boost employment significantly over the next number of years, reaching 150,000 compared to a current level of 103,000. Indeed, employment in construction was up 6.2% in the year to Q1, the fastest pace of growth since Q2 2007, having troughed at 97,000 at the start of 2013.