A tale of two halves as Ireland looks to future growth

Mace, the global programme and project delivery consultant and construction company, has published its Ireland Market View for the first half of 2024, indicating a positive outlook for the built environment if persistent challenges across the sector can be addressed and favourable macroeconomic trends are capitalised on.

The report highlights that Ireland is seeing inflation cool at a faster rate than most countries on the continent, with the higher interest rates imposed over the past two years beginning to have the desired effect. Data from the April 2024 Harmonised Index of Consumer Prices (HICP) serves as evidence of the improvement, with a figure of 1.6% putting the index at the lowest it has been in three years.

Even so, Mace warns that while this trend may look brighter for households, higher interest rates continue to bring consequences in the world of construction. High rates are widely considered to have deterred investors and, while the European Central Bank cut rates last week, having raised them on six occasions in 2023, at 4.25% they are still much higher than they were.

Crucially, Mace’s paper explains that in pushing up the cost of borrowing there was a large decline in lending to real estate activities and construction last year. More difficult credit conditions are likely to put some types of new projects at risk and present challenges to indebted contractors.

In another case of contrast, Ireland’s overall labour market is currently tight and operating at full capacity. Ireland is seeing low unemployment rates and private sector earnings were 3.6% higher in Q4 2023 than a year earlier. With wages set to outpace inflation, the strong labour market should support household consumption.

However, it’s not the same success story across sectors in the built environment. Compared to the whole economy, the construction sector appears weak. Mace’s report notes that, whereas overall employment has grown strongly over the past 12 months, for construction it was lower in Q4 2023 than it was at the end of 2022. This is further emphasised by pay growth in construction not being as pronounced. The drop in employment is likely to be strongly correlated with lower construction production and, while the growing residential sector will help, challenges in the labour market are likely to persist in the short-term.

Despite the challenges faced, Mace suggests that the future for the Irish built environment is positive if opportunities can be capitalised on. Project Ireland 2040 and the National Development Plan are already driving focused efforts to deliver more infrastructure and housing, while achieving decarbonisation and other environmental benefits. With an election on the horizon, a need to grapple with the stifling planning system must be at the top of the successful administration’s list, Mace argues.

Frank Randles, Country Director for Ireland, Mace Consult, said:

“The prospects for the economy this year look fairly healthy. Households will benefit from cooling inflation, while the low unemployment rate and growing size of the workforce will support consumption.

“For construction, housebuilding, which is set to be a key battleground in the upcoming general election, should expand. However, the tight labour market, alongside challenges with planning and water shortages, is likely to prevent it from developing as fast as politicians would like.

“Meanwhile, the infrastructure sector should continue to perform well, with Project Ireland 2040 driving growth. By contrast, the non-residential building sector, which had a particularly difficult 2023, may struggle again. High interest rates and a weak global economy are likely to deter speculative developments, and its issues last year were one of the main reasons behind the recent drop in construction employment.”