The levels of uncertainty currently surrounding the European construction market were highlighted at the 82nd Euroconstruct conference, with Brexit (the UK’s decision to leave the European Union), the election of Donald Trump as President of the US, and upcoming elections in France, Germany and the Netherlands all cited as causes.
The conference was hosted by ITeC (Institut de Tecnologia de la Construcció de Catalunya), in Barcelona.
In reviewing the macroeconomic environment, Sergi Martrat, deputy chief economist at Banco Sabadell, told the conference that GDP (gross domestic product) growth globally in the period from 2017 to 2020 would be lower in most countries than from 1990 to 2007. He predicted a slowdown of international trade.
For the Euro area, he said growth would be driven by domestic demand, but that there were key elections to be held in 2017. In the UK, he said there was a weak economic outlook as a result of the uncertainty surrounding the Brexit talks.
The yearly percentage growth of construction global investments for 2016 is going to be the worst year since 2009, according to Antonio Maura of Cresme, the Italian-based construction research company. He is head of SiMco (World Information System on Construction), which analyses 150 countries.
He said that construction would grow at a slower rate than the global economy, at 1.5% against 2.5%, and that this had only happened four times in the past 16 years. He added that sector growth would remain weak in the next two years, and would start to grow significantly faster than GDP from 2019. The acceleration would be led, he said, by the recovery of major emerging markets and advances in developing countries.
Euroconstruct said that as the most recent of its conferences, in Dublin last June, had been held a few days before the referendum in the UK, the Barcelona conference provided the first opportunity to assess the repercussions on the European construction sector.
It said that Brexit had perhaps not yet caused a direct disaster on the European economy, but that it had lowered mid-term expectations – combined with a long list of other factors, such as China slowing down, Germany slowing down, uncertainty in the US, European banks “still not out of trouble”, the likely increase in interest rates, and so on.
It said that since construction was heavily influenced by mid-term prospects, it was hardly surprising that the new forecast was less optimistic than the one published six months earlier.
The new estimate for construction output in the Euroconstruct countries in 2016 was 2% – six tenths of a point less than in the forecast last June.
Euroconstruct said, that the real problem, however, was not that expected growth had not come about, but the fact that behind a European average that still looked healthy there were far too many exceptions. It said these included lack of growth in in civil engineering, and lack of growth in six countries – Poland, Hungary, the Czech Republic, Slovakia and, by a narrow margin, the UK.
It predicted that 2017, with no encouraging economic expectations, would start at just 1.4% GDP growth. However, it said the construction sector had the potential to grow somewhat more, at 2.1%.
It said the key factor for strengthening the construction sector was public demand, which Euroconstruct expected to keep improving, but only marginally and in some countries.
“With such weak foundations,” it said, “the growth expected for 2018 and 2019 was between 2.1 and 2.2%. Nevertheless, if the forecast becomes a reality, the European construction sector will reach 2019 with uninterrupted growth for six years in a row. This would put the output level at only 3% below the 1995 to 2015 average.”
The forecast for residential was the only one that had been revised upwards since Dublin, and included a substantial improvement on the 2016 estimate of 3.9%. It said that new housing construction, in particular, had assumed the role of maintaining the recovery pace of the whole European construction industry.
Euroconstruct said that non-residential construction was still at the very early stage of its recovery process, since its new building component had been decreasing until 2016.
“Therefore,” it said, “the present downgrade in the economic outlook comes at a very inconvenient time, cooling the already weak demand for industrial and tertiary assets.”
Euroconstruct does not expect quick changes, so growth for 2016/2017 will be around 1.5%, and 1.8% for 2018/2019.
It felt that civil engineering was the market segment where the forecast had worsened the most, up to a point where the new estimate for 2016 was now negative at -1%.
It said the reasons for this downward pull differed between the countries that were most affected.
The four Central Eastern countries were already expecting problems in 2016 as a result of the period of transition between the end of the 2007 and 2014, and the start of the following round of EU structural funds. It said that Portugal and Spain were two countries with problems of fiscal imbalances that were weighing down infrastructure investment.
Finally, it said the UK was facing another shift in expectations and its civil engineering had entered a hiatus of low activity that could last up to three years, depending on the start of a specific programme of infrastructure development as an anti-recession measure.
However, Euroconstruct said that as soon as structural funds flowed back into Eastern countries, European civil engineering would be in position to grow again in 2017, at 1.8%. The positive trend will continue in 2018, it said, with growth of 2.9%, and 2019 at 3.2%.
Euroconstruct has a network covering Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland and the UK.