Ireland’s construction sector recorded a sharp slowdown in June as rising costs and shipping disruptions linked to the conflict in the Middle East reduced activity, with residential building posting its steepest decline in nearly four years, according to the latest AIB Construction Purchasing Managers’ Index (PMI).
The headline PMI fell to 45.4 in June from 50.2 in May, dropping below the 50-point threshold that separates growth from contraction. It marked the second monthly decline in construction activity over the past three months and the weakest reading since September last year.
The survey showed that all three major construction segments experienced declining activity during the month. Commercial construction, after four consecutive months of expansion, returned to contraction, although it remained the strongest-performing segment. Residential construction weakened for the third straight month, recording its fastest decline since July 2022, while civil engineering activity contracted for a 14th consecutive month.
AIB said lower workloads prompted construction firms to reduce purchasing activity for the first time in eight months. At the same time, suppliers’ delivery times lengthened despite weaker demand for materials, with businesses reporting shipping delays linked to the Middle East conflict and shortages of key construction supplies.
Companies also continued to face elevated costs for essential materials. Higher prices for oil and other raw materials were widely cited as major contributors to inflationary pressures. Although the pace of input cost inflation eased slightly for a second consecutive month, price increases remained significant. The report also noted that subcontractor rates rose at a much slower pace than in May.
Despite weaker activity, employment across the construction sector continued to grow. Firms added staff for the eighth consecutive month, suggesting employers remain optimistic about future demand even as current market conditions remain challenging.
Confidence about the year ahead improved for the second month in a row, supported by expectations of stronger housing demand and an increase in new orders. Even so, overall business sentiment remained relatively subdued as firms continued to express concerns over persistent inflation and rising operating costs.
AIB Senior Economist John Fahey said the survey indicated that the construction sector ended the second quarter on a weak note as higher prices continued to weigh on activity. He pointed to the decline in new orders, which fell for the second time in three months and at the fastest pace since August 2023, as a sign of softer demand.
Fahey said some respondents reported that rising project costs were discouraging potential clients from committing to new developments. He added that many firms continued to associate high input costs with the impact of the Middle East conflict, although improving confidence about activity over the next 12 months offered a more positive outlook for the sector.
