Editor's Comment: The challenging home market is making European contractors more international

As this month’s regional report illustrates, contractors in Europe do not have a lot to be cheerful about at the moment. The market has fallen almost without respite since the global economic crisis, and although it is still big – about US$ 1.7 trillion per year – construction output in the region has collapsed back to the level it was at in the mid-1990s.

Even in the boom years, Europe had a problem with growth. Things were going well from about 2004 to 2008, but going well in European terms was still only about a +3% increase in construction output per year. The same period saw the US market achieve growth of nearly +9%, although of course a lot of this was due to the housing bubble which led to a very painful market crash from mid-2006 onwards. But it seems Europe is going through the pain of the ‘bust’ right now without first enjoying the ‘boom’.

The lack of competitiveness and low growth in parts of Europe is of course a problem that extends beyond the construction sector.

Economists point to factors like high taxation and inflexible labour markets as structural problems, and at the moment austerity and the debt burden in countries like Spain and Greece, tied to politicians’ inability to resolve these issues, weigh further on growth.

These issues are why Europe is not only in the doldrums now, but why growth prospects are bleak for the foreseeable future. Even if a recovery does materialise in 2014, the construction sector will probably only grow by +1% or +2% at the most. Even when the market is back to something resembling normality, the prospects do not look very bright. In this month’s Economic Outlook, Scott Hazelton of IHS Global Insight says annual growth from 2017 to 2022 will only average around +2%.

But this weakness in domestic markets seems to be spurring Europe’s contractors to greater successes abroad. As reported in our November 2012 issue, European construction companies performed a record
US$ 106 billion of work outside of Europe in 2011 and won US$ 120 billion of new contracts outside the region. Those figures have near-enough doubled over the last ten years.

In terms of global construction output, US$ 106 billion is small change. It represents only about 2% of construction activity outside Europe. However, what is important here is the trend over the last ten years. Markets like Latin America and the Middle East have emerged from obscurity to mature to a reasonable size, while Africa and Asia/Oceania have grown in importance as export markets for European contractors.

So with weak markets at home for the foreseeable future, European construction companies will doubtless continue to look to other regions of the world to win work.