Five questions on the Irish construction industry

With the large drop-off in activity, Crédito y Caución sees the present insolvencies trend continuing for the remainder of this year and into 2011.

Madrid - 31-ago-2010

How has the construction sector performed in the last six months?

The construction sector continues to contract - and most analysts predict that the recovery is a long way off. According to the CSO, production volume and value continued to decline in Q1 of 2010, by 34.1% and 34.8% respectively. Over the past 24 months, Crédito y Caución has seen employment in this sector drop by 123,000, accounting for 46% of Irish job losses over this period. The Ulster Bank Construction Purchasing Managers Index for May recorded the 36th consecutive reading below the 50 break-even level, indicating that the recession in this sector has now lasted for 3 full years. House prices have fallen 18.9% in the 12 months to March 2010 and 24% in Dublin over the same period. To date there are no real signs of a recovery in prices.

What is the current trend in insolvencies?

There were 240 insolvencies in construction for the year to June, accounting for 30% of the yearly total so far. With the large drop-off in activity, Crédito y Caución sees this trend continuing for the remainder of this year and into 2011.

What should companies selling products into the Irish construction sector pay particular attention to?

Trading within the sector continues to be risky. That is why Crédito y Caución actively seeks updated financial data on risks because, without this information, it is difficult to assess the buyer in question. Areas that the Company looks at include banking facilities, liquidity, asset management, profitability, projects in hand and cash flows.

What is Crédito y Caucións short term outlook for the Irish construction sector?

Planning permissions for houses and apartments in Q1 of 2010 were down to 5,510 a drop of 61.1% year-on-year. The Bank of Ireland has estimated that housing completions for 2010 will total 17,000 [mainly one-off build] - a huge reduction from the high of 88,400 in 2006. New build will remain low until the stock of completed units is cleared, banks start lending again and consumers believe that the property market has actually bottomed out. With cut backs in government spending, due to the budget deficit, we can see a number of infrastructure projected being put on hold - and this will contribute to the difficulties the sector is experiencing.

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