Calculating the Cost of the Pandemic

Earlier this week, somewhere between 15,000 and 20,000 construction workers returned to non-essential project sites all around the country as part of the phased reopening of the industry. According to a report carried out by EY/DKM on behalf of the Construction Industry Federation, or CIF, which was published last month, the initial shutdown of the construction sector for seven weeks during the initial stages of the Covid-19 pandemic knocked €2 billion off construction output last year, which translates into a contraction in the value of construction output of around 7.3 per  cent for 2020, down to €24.7 billion. CIF figures indicate that around 800 houses a week were being missed as the sector remained closed and at least 10,000 houses this year will not be provided as a direct result of Ireland’s Covid-19 response. This recent EY/DKM report also revealed that each week of lockdown reduces industry output by €427 million and costs the Exchequer €53 million. As we enter Q2, contraction this year is estimated to be in the region of €3 billion. Of course, calculating the cost of the pandemic feels somewhat redundant right now as the meter is still running…

Earlier this week The Irish Times reported that a ‘Rebound in economic growth forecast to close budget deficit’. This article references new forecasts from the Department of Finance, which suggest that the Government should not come under pressure to raise taxes significantly or cut back on spending in the next couple of years as the economy emerges from the pandemic. The budget deficit is now expected to fall quickly from 2022 onwards, with the budget reaching a position close to balance by the middle of the decade. This release comes on foot of the Irish Fiscal Advisory Council (Ireland’s budget watchdog), which has called on the Government to outline how it will pay for ongoing spending commitments in the years ahead.

Despite the extended period of industry shutdown, there appears to be positive sentiment coming from the latest Ulster Bank Construction Purchasing Managers’ Index, which showed the construction sector  to be increasingly upbeat, despite a continuing sharp contraction in trade last month. In fact, no less than 60 per cent of firms surveyed expect an expansion of activity over the next year. This jump in confidence has been explained by Ulster Bank’s chief economist, Simon Barry, as being underpinned by the expectation of improved business conditions for the sector as restrictions are eased and as pent-up demand is released. 

Interestingly, CBRE’s report on development land deals for Q1 show that 23 land sales were completed in the first three months of 2021, worth a combined €110 million, which is less than half the average quarterly transactions in development land over the last five years. It is difficult to distinguish between cause and effect here, however, it is an interesting dynamic to see play out on the development side and to watch what opportunities will arise.

Ian Lawlor
086 3625482

Managing Director 
Lotus Investment Group