Construction market recovery

24 April 2008

Construction activity within the 22 European Union countries represented by FIEC grew +0,8% in 2005 to more than € 1070 billion. According to FIEC, last year's lower rate of growth marks the first slowdown in the European construction market since the latest recovery began in 2003.

FIEC's latest economic review shows the slower growth in construction activity in 2005 was mainly due to the impact of high oil prices on the general economic climate. However, the report suggest that strong gains in the residential construction sector across Europe helped the industry to achieve positive outcome last year despite the difficult economic conditions.

Across all the countries covered by FIEC, activity in the new residential market rose +3,2%. This growth continues to be fuelled by low interest rates and renewed optimism in the consumer market. Non-residential and civil engineering were more affected by the general economic slowdown and remained fairly static in 2005. The rehabilitation and maintenance market is less affected by economic cycles and continued to show moderate but stable growth last year.

Countries

Gains in the house building sector last year accounted for higher than average growth in France, Italy and Spain, three of Europe's ‘big five' countries along with Germany and the UK. These five countries accounted for 74% of the total construction activity record by FIEC last year, so the performance in these nations has a big influence on overall growth.

Strong gains in the residential construction sector across Europe helped the industry achieve a positive outcome last year, despite the difficult economic conditions.

One of the best performers out of the ‘big five' was Spain where construction rose +6% thanks to an +8,5% increase in residential construction and civil engineering. Double digit growth in house building (+10,2%) in France helped gains in overall construction market reach +3,1%. Construction activity in Italy also grew in 2005 to +1,5%, with the residential sector recording a +2,2% rise.

However, construction activity fell in both the UK and Germany last year. FIEC believes that the UK's unexpected -0,9% drop in output was partly due to a significant fall in the house building sector, which performed well between 2002 and 2005. Germany's -4,5% fall in activity is the sixth successive annual decline recorded by FIEC.

Elsewhere in Europe an increase in house building also helped to boost construction activity. The Nordic countries saw growth of +3% with the exception of Sweden, which recorded an +8% rise, driven by a +23% gain in the residential sector.

The Netherlands also maintained +2,8% growth in construction, despite a poor performance in the civil engineering market thanks to a +6% increase in house building. Increasing activity in the house building and civil engineering markets also helped Belgium and Ireland record +5,5 and +5,6% growth, respectively.

A slight fall in construction activity in 2005 was seen in Greece, but FIEC expects that the country will remain to be one of the most dynamic in the sector. However, Portugal recorded a -3% drop in activity for the fourth year in a row and 2005 is unlikely to be the last in this trend. Portugal's recession has affected all areas of the construction sector.

The general economic slowdown only had a minor effect on construction activity in the new EU member states. The growth in Slovak Republic (+5,3%), Czech Republic (+5,5%) and Hungary (+4,8%) was mainly sustained by the civil engineering sector rather than new building work. FIEC believes that this trend will continue, despite the housing needs in these countries.

Current Prospects

FIEC expects 2006 to be marked by a recovery in construction activity, with overall growth of around +1,9%. New residential construction is expected to grow again this year but is unlikely to reach the levels of growth recorded over the last three years, with increases at +2,6%. The prediction for the non residential building sector is for moderate growth of +1,3% in 2006. A similar expansion will be seen in the rehabilitation and maintenance segment.

The main area of growth in 2006 is expected to come from the civil engineering market with gains of +3,1%. The recovery in this market will be strongest in the EU's new member states where authorities are prioritising infrastructure investment, which is being boosted by EU structural grants. Best performances are likely to be in Hungary (+12,1%), Czech Republic (+12%) and the Slovak Republic (+9,3%).

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