ACTIVITY IN the building sector has fallen by a fifth in volume terms in the first three-months of the year, according to figures released by the Central Statistics Office (CSO) yesterday, writes David Labanyiand Barry O'Halloran.

The index of production in building and construction showed a 21.6 per cent fall in volume terms and a 18.2 per cent drop in value.

The main component in the reduced output was a 38 per cent fall in residential house-building which was only marginally offset by a 9 per cent rise in non-residential construction.

Activity in civil engineering projects fell 4 per cent over the period.

In the euro zone area, overall output rose 2 per cent with Slovenia showing a 32.2 per cent rise and Romania's construction sector rising 31.8 per cent.

Last month, economist Annette Hughes in a report she presented to the Euroconstruct Conference in Rome, warned that construction output here will tumble by 17.7 per cent in 2008.

Last year, the industry generated about €37 billion, close to one-quarter of all wealth created in the Republic in 2007.

On that basis, a fall of 17.7 per cent would see the construction industry's output fall by €6.5 billion this year.

House building is bearing the brunt of the slump.

Estimates of the number of new homes that will be built in the Republic this year vary, but most analysts have settled on figures ranging between 45,000 and 48,000. This is about half the record 88,000 homes that were built in the Republic in 2006, the height of the building and pro-perty boom.

According to other figures recently released by the CSO, 274,400 people were working in construction at the end of March, down from a record high of 282,000 in the first quarter of 2006.

The numbers relate to building firms employing five or more people.

Last week, Construction Industry Federation (CIF) director, Tom Parlon, predicted that between 20,000 and 30,000 jobs will be lost in the sector this year as negative sentiment and the credit crunch have cut demand for new houses.

The industry is pinning its hopes on large-scale, Government-backed, infrastructure projects. This year's budget for such projects is over €13 billion, but there are fears that falling tax receipts will force the State to cut back on some of its building plans.

The CIF is in talks with the Government and the banks in an effort to come up with incentives that would help kick-start the ailing housing market.

The federation has also pointed out that there is a real danger that house building will fall below the level required to meet underlying demand for new homes, which it estimates at about 50,000 a year.

It has warned that this will lead to bottlenecks in the future, artificially driving up house prices.