Forecasts downgraded

11 April 2008

A weak spanish housing market and the US sub-prime crisis have forced economists to downgrade their forecasts for European construction markets – although the predictions would have been far worse but for solid growth in civil engineering and commercial building and the continued strength of Eastern Europe.

The forecasts were published at the end of November by Euroconstruct - a group of research and forecasting institutes from 19 European countries. It predicts output will rise by +1,4% and +1,6% in 2008 and 2009 - a cut of -0,4 points a year compared with the last set of forecasts, published in the summer. This represents a reduction in construction work of &#euro; 30 billion over the two-year period.

The overall figures also mask a sharp divide between East and West. Western Europe will grow by just +1,0% and +1,2% in real terms in 2008 and 2009. Over the same period, the East will rise by +9,2% and +8,8%.

Polish Growth

The star performer will be Poland where total output is expected to rise by +40% between this year and 2010, with spending on civil engineering projects expected to grow by over +31% in real terms in 2008 alone.

In the four years to 2010, the Polish infrastructure sector is predicted to more than double, from output of € 8,8 billion in 2006, to over € 17,5 billion in 2010.

“Civil engineering is the driving force of construction output in Poland,” said Dr Margarete Czerny from Austrian Institute of Economic Research (WIFO), and an advisor to the Austrian government. “The Polish government has developed a new programme for national roads and transport infrastructure, supported by the EU.”

She added that the country's demand for new offices, warehouses and industrial buildings is also strong thanks to high levels of direct investment from abroad.

“The boom in the real estate market is continuing, accompanied by a record-breaking increase in prices.”

Despite the spectacular growth in the East, it is the fortunes of the so-called Big Five – Germany, France, Italy, Spain and the UK – that has most impact on the European market. Between them they account for 70% of total construction output.

Only the UK is predicted to show any consistent and significant growth – between +2,4% to +2,7% between 2008 and 2010 - thanks in part to the effect of the 2012 Olympic Games in London.

France and Germany will also show real terms growth, although at a slower rate.

But the picture in Spain – Europe's biggest housing market – is causing serious concern.

Annual completions – mostly of apartments - are expected to peak in 2007 at 775000 and then tumble dramatically by -26% to just 570000 by 2010, a fall of 205000, which is about the same as the entire German market. “The Spanish residential sector is turning into a crisis,” Dr Czerny said.

The Italian market is predicted to fare little better, with completions expected to drop by -17% over the same three year period.

By sector, non-residential building is expected to perform well, although growth will slow from +4,4% in 2007 to +2,0% in 2010.

Infrastructure

For civil engineers, the picture remains upbeat, with growth expected to climb from +3,2% this year to +4,0% in 2009, before dipping back to +3,0% in 2010.

“In the near future, civil engineering activity will focus on the maintenance and renewal of the water supply infrastructure. Also, investments in productive capacity and sustainability in the energy sector will strengthen the sector,” said Erich Gluch from Germany's Institute for Economic Affairs.

And despite much government talk about the need to invest in railways and public transport, instead of roads, there is no evidence of this actually taking place on the ground.

Road spending is forecast to account for 38% of civil engineering spending between 2007 and 2010, slightly up in the previous four years.

The countries represented in Euroconstruct are: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland and the United Kingdom.

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