Manufacturing & Supply Chain

It would be prudent for the Irish construction industry to discount over-ambitious targets in the next version of the National Development Plan (NDP) as they could be sacrificed from 2023 or 2024 onwards, according to economist Colm McCarthy. “Construction is greatly assisted by a stable capital programme and if there is a retrenchment in budget policy, on past form the capital budget will suffer,” he said.

McCarthy was speaking at a recent webinar organised by Octabuild, a group of major Irish building material suppliers, Dulux Paints Ireland, Etex Ireland, Glennon Brothers, Gyproc, Instantor, Irish Cement, Kingspan and Wavin.

“The new NDP will be ambitious, and the ambitions may not be realistic. When the public finances get into trouble, Irish governments follow tradition. They slash the capital programme,” said McCarthy.

“After the setback of the 1992/93 currency crisis, government capital spending more than doubled through the 1990s and had reached €4 billion by the year 2000. This figure doubled again through the bubble period, peaking at around €9 billion when the bubble finally burst in 2008.

“The capital budget halved by 2011 staying below €4 billion until 2016. Demands on public infrastructure began to rise again. Consequences of the capital spending collapse included scarce public housing, unrepaired roads and a backlog of water investment.”

He believes that this time nice-to-have projects may be deferred. “The housing budget will take precedence and local authorities will be funded to increase output of housing for rent and given money, to improve services. Perhaps Irish Water will also get a decent capital budget.  Also whatever has to be done to bring about climate transition, there is a big bill coming in the energy sector. Those things are the priority.”

On the question of a shortage of labour in the construction industry, McCarthy said that labour supply shortages in Ireland could prove to be temporary. He believes that in the longer term there could be a reflow of people from Eastern Europe as the UK becomes less accessible.  “In the bubble period of 2003-2008 inflows of workers to Ireland were higher than to the UK,” he said.

On the forthcoming budget McCarthy expects it to be the last ‘soft’ budget for some time. “There has been a presumption that the Government will get back to budget balance in three/four years’ time. We still have a substantial sovereign debt so it is surprising that the Government chose to relax budget targets.

“Unless there is a sustained take-off in economic growth, the budget position could quickly become difficult,” he said. “Permanent spending, as well as emergency spending, has risen sharply. Permanent revenue has not. ECB support for sovereign bond markets will be run down in time and European Commission limits for debt and deficits will be re-invoked from 2023.”