Construction activity in Ireland continued its downward trend in December, marking the eighth consecutive month of decline, according to the latest Purchasing Managers’ Index (PMI) from AIB. However, the rate of decrease slowed compared to November, suggesting a potential easing of the contraction.
Sector-Wide Contraction with Varied Rates
The AIB PMI found that all three main areas of construction – residential, commercial, and civil engineering – experienced reduced activity. The residential sector saw the smallest decline, with the rate of reduction being the softest in seven months. Civil engineering remained the weakest performing area.
The headline seasonally adjusted Construction Total Activity Index remained below the 50 no-change mark, signaling a continued reduction in overall construction output. Despite this, AIB noted that other indicators within the PMI “painted a more upbeat picture of the sector at the end of 2025.”
Signs of Potential Recovery
For the first time in five months, new orders increased, prompting companies to expand employment, purchasing activity, and their use of sub-contractors. Some companies reported delays in project start dates contributed to the overall decline in activity, while others increased activity in response to growing customer demand.
Business confidence also improved, reaching its highest level since January of last year. Construction firms are “increasingly confident” that activity will pick up in 2026, with sentiment rising to an 11-month high in December. This optimism is linked to increasing customer inquiries.
Despite the positive outlook, firms reported difficulties sourcing materials and a “further sharp increase in input costs,” although the rate of inflation softened slightly from November. Employment and purchasing activity both increased for the second consecutive month, but at a modest rate. The use of sub-contractors also rose for the first time in six months, leading to reduced availability.
Frequently Asked Questions
What does a PMI reading below 50 mean?
A PMI reading below 50 indicates a contraction in the sector, meaning activity is decreasing. The December reading of 48.4 signifies a continued, but lessening, reduction in construction output.
Which area of construction performed the best in December?
According to AIB’s Senior Economist John Fahey, the residential sector was the best performing of the three sub-sectors, with the pace of contraction being the mildest since May.
What is driving the increased confidence among construction firms?
Increasing customer enquiries and the return to growth in new orders are boosting confidence in the outlook for 2026, according to the Construction PMI.
What impact these trends will have on the construction sector in the coming months remains to be seen. A sustained increase in new orders and easing of material costs could be key factors in a potential recovery.
