Building sector 'worst performer' in Europe

THE REPUBLIC'S building industry is the worst performer in Europe, according to figures that will be released today at an international conference.

DKM Economic Consultants, the firm which produces reports on the construction industry for the Government, says the sector in the Republic is likely to record the sharpest fall in Europe this year.

DKM economist Annette Hughes, in a report she will present to the Euroconstruct Conference in Rome today, says construction output here will tumble by 17.7 per cent in 2008.

Last year, the industry generated about €37 billion, close to one-quarter of all wealth created in the Republic in 2007.

On that basis, a fall of 17.7 per cent would see the construction industry's output fall by €6.5 billion this year.

Ms Hughes's report says the next-worst performer in Europe this year is likely to be Spain, where the industry is likely to shrink by close to 6 per cent.

She notes that the slowdown in both countries is tied largely to a falloff in housebuilding. She forecasts that the total number of new homes built in the State this year will be 43,000, less than half the 2006 record of 88,000.

In a separate report yesterday, global ratings agency Fitch predicted that house prices in the Republic would fall by 10 per cent this year, as demand for homes has fallen behind supply.

"The trend of negative monthly declines in house prices is likely to continue, given the oversupply of houses in the market, stretched mortgage affordability and ongoing funding constraints for lenders," Bloomberg quoted Fitch chief economist Brian Coulton as saying yesterday.

Ms Hughes warns that the slowing economy will weaken demand for new-home building over the medium term, and says the Government's building plans will be key to underpinning the building industry.

"It is thus possible that the public sector could be the key driver of construction over the medium term," Ms Hughes says in the report.

"With a public capital programme of the order of €13.7 billion this year, this level of investment could make a substantial contribution to sustaining activity levels in the construction sector while the housing adjustment unfolds and activity levels in the non-residential sector become more subdued.

"It is thus imperative that the Government does not renege on its commitments to social and productive infrastructure in the National Development Plan."

Ms Hughes's report adds that projects should be brought to the building stage as quickly as possible, particularly as tender prices are likely to fall, implying that there are opportunities for real value for money.

"This will have the added bonus of maintaining economic activity during the downturn and delivering additional capacity when the economy recovers," Ms Hughes says.

Euroconstruct is an alliance of construction economists from 19 western, central and eastern Europe countries. DKM is the Irish member of the group.