A new report published today predicts that the construction sector is set to slow gradually over the next two years, but will still remain a key component of the Irish economy.
The report - by Goodbody Stockbrokers' Chief Economist Dermot O'Leary - says that the construction sector is made up of several components which will move in different directions over the next few years, with increased activity seen in the non-residential sector.
The Goodbody report reveals that the construction sector accounts for 23% of the country's GDP, compared to an average of about 12% in the EU.
The report forecasts that new residential building activity will peak this year at 92,000 and remain at relatively high levels next year, with 88,000 units set to be completed. It predicts that completions will fall to 77,000 units in 2008, with supply levels starting to fall to an average of about 68,000 until 2011 in line with demographic demands.
Dermot O'Leary says that residential construction has been the key driver of the construction sector. Unit completions reached a record level of 86,000 last year, which represented the 11th year of record output. They are now running at a rate of almost 21 units per 1,000 population, compared to five per 1,000 in the EU.
'However, Ireland's housing stock remains quite low at 410 units per 1,000, relative to the EU average of 465 units,' Mr O'Leary says.
'Ireland has been in catch-up mode in recent years. This is a trend we expect to continue, with completion levels set to exceed the rest of Europe up to the end of the decade,' the economist adds.
Mr O'Leary says that non-residential construction will lead the way forward for the industry after this year. He says that public capital spending remained underpinned due to a major infrastructure deficit, which the Government is committed to addressing.
'We estimate that construction industry output should grow once more in 2007 (4.9%) before contracting modestly (-1.1%) in 2008,' Mr O'Leary says.
The report concludes that the non-residential sector will have an important role to play in how the economy performs during the slowdown phase, but predicts that a soft landing is the most likely course for the construction industry over the coming years.
