A few weeks before the recent Budget, leading economist, academic and media commentator, Colm McCarthy, predicted that consumer spending on private residences would auger well for the building/construction industry in the short term.
In addition, he said ambitious targets in the Housing for All plan announced prior to the Budget would suggest a positive short and medium-term future for the sector and its suppliers.
The Budget subsequently included €202m for 22,000 home energy upgrades. Colm McCarthy was speaking at a webinar organised by Octabuild on 21st September. The webinar was introduced by Octabuild chairperson Ray Molyneaux of Irish Cement on behalf of the other Octabuild companies: Dulux Paints Ireland, Etex Ireland, Glennon Brothers, Gyproc, Instantor, Kingspan Insulation and Wavin Ireland.
Budget 2022 has been described as a ‘one for everyone in the audience’ event but even before it was delivered McCarthy warned that this would be the last ‘soft’ budget for some time. “Unless there is a sustained take-off in economic growth, the budget position could quickly become difficult. Permanent spending, as well as emergency spending, has risen sharply. Permanent revenue has not,” he said. In terms of the National Development Plan (NDP), which was due to be published shortly after the Octabuild webinar took place, McCarthy warned that based on previous experience of NDPs, its long-term benefit might not transpire.
“It would be prudent for the construction industry to discount over-ambitious targets in the next version of the NDP as they could be sacrificed from 2023 or 2024 onwards,” he said.
He continued, “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. Far from acting to stabilise economic activity as the textbooks recommend, the public capital programme has been an
independent source of macro-economic instability in Ireland. The stop-start
pattern delivers poor value – bad projects already commenced get completed and better ones get cancelled or deferred.
There have been three over-shoot debacles recently, the national broadband plan, the maternity hospital and the children’s hospital.
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.
He believed that this time the ‘nice to have’ projects may be deferred. “The housing budget will get precedence and local authorities will be funded to increase output for housing for rent and given money, for a while, to improve services. Perhaps Irish Water will also get a decent capital budget.
Whatever has to be done to bring about climate transition, there is a big bill coming in the energy sector. Those things are priority,” he said.
It subsequently emerged in the NDP that Irish Water is projected to invest in the region of ¤6 billion in our water services infrastructure over the period 2021-2030 with €4.5 billion in relation to investment in domestic water services, which supports future housing delivery.
On the question of a shortage of labour in the construction industry, Colm 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 other countries in part as the UK is not as accessible. “In the bubble period of 2003-2008 inflows of workers to Ireland was higher than to the UK,” he said.
Colm also said that there are numerous other uncertainties – especially the stance of Eurozone monetary policy and the path of borrowing costs. 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.
Overall Colm McCarthy provided a very interesting analysis of the current and future economic landscape. Largely positive in the short and medium term as private deposit balances have risen sharply and will support spending and as the state capital budget is also expanding. At the same time Colm was urging caution in the longer term in the event of a retrenchment in budget policy.
