Business

Sharp drop in productivity across Irish construction and accommodation

In its SME Monitor report, Banking and Payments Federation Ireland calls for long-term investment strategy for SME sector

Ireland has seen a 29 per cent drop in construction sector productivity in recent years. Photograph: iStock
Ireland has seen a 29 per cent drop in construction sector productivity in recent years. Photograph: iStock
Fiona Keeley
Fri Nov 01 2024 - 06:00

There has been a sharp drop in productivity across small and medium-sized (SME) Irish businesses in areas such as construction and accommodation, a new report has shown.

The SME Monitor report from the Banking and Payments Federation Ireland (BPFI) has called on Government to establish a long-term investment timeline for training and capital for sector, rather than one-off payments.

Ali Ugur, chief economist at the BPFI, said targeted investment could differ depending on the sector, for example focusing on training in the accommodation and food areas. However, for businesses in the manufacturing sector, investment could mean subsidies for new machines.

Mr Ugur said the Irish economy had done well overall, particularly in the past two years and that “is expected to continue, albeit at a slower rate”.

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According to the report, which draws on Central Statistics Office (CSO) data, average labour productivity in the Irish economy increased by 6 per cent across the country between the end of 2019 and the second quarter of 2024. However, workforce productivity was not the same across every sector of the economy – there was a 29 per cent drop in the construction sector and a 14 per cent drop in the accommodation sector, across the same period.

Mr Ugur said that, when considered in a European context, the accommodation and food sectors in Ireland have recorded “the second-steepest decline in labour productivity since 2015, after the Czech Republic, as well as the third-steepest decline in construction, after the Czech Republic and Austria. These are sectors where SMEs account for 80 per cent and 62 per cent of employment, respectively.”

He acknowledged many SMEs are under pressure after the budget, which brought increases in the minimum wage to €13.50 an hour from next January; the introduction of statutory sick pay; and the 13.5 per cent VAT rate.

Businesses with fewer than 50 employees reported lower weekly and hourly rates at €774.16 and €24.85, respectively. For the accommodation and food sector, weekly earnings were less than half the average of all sectors at €451.93.

SMEs account for nearly 68 per cent of employment across the country, according to the latest CSO data. The number of people employed by SMEs between 2019 and 2022 rose by 400,000, from 1.16 million to 1.156 million.

Overall, the BPFI report shows economic activity dropped in the first half of 2024. It says recent moves to lower interest rates by the European Central Bank have placed “downward pressure on demand with increased consumer prices while businesses face higher operating costs”.

The volume of seasonally adjusted gross domestic product in Ireland is also shown to have dropped by 1 per cent in the second quarter this year. This was mainly driven by the 0.7 decrease in industry output, excluding the construction sector, and a 0.9 per cent fall in the information and communication sectors.

The report came alongside data on Thursday showing inflation rose to 2 per cent across the euro zone, slightly above the expected 1.9 per cent for October.

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