European construction defies expectations

Strong growth in the residential construction sector is driving better than expected gains in the European building market this year. Construction output in the 19 Euroconstruct countries* is expected to grow by +2,6%, to reach € 1,3 trillion in 2006.

Euroconstruct originally predicted 2005's construction growth of +1,5% would be repeated in 2006 at its November conference in Barcelona, Spain. However, a revised +3,5% growth estimate in residential construction, compared to a previously predicted -0,3% decline, has improved Euroconstruct's optimism for 2006. Additional gains in the civil engineering and non-residential markets in 2006 were also predicted at Euroconstruct's June conference in Amsterdam, Netherlands.

In terms of countries, Euroconstruct is predicting the strongest growth in 2006 to be in the Slovak Republic and Poland with gains of +9,0 and +8,9%, respectively, expected. Higher levels of construction growth are also forecast for Sweden (+6,8%), Belgium (+6,4%), Ireland (+5,7%), Norway (+5,4%), Hungary (+5,1%) and the Czech Republic (+4,8%).

Growth prospects for the five largest construction markets in Europe - France, Germany, Italy, Spain and the UK - in 2006 are mixed. In 2005, these five countries represented 72% of the area's € 1,27 trillion construction market.

Spain and France are predicted to show the strongest growth this year at +4,4 and +3,7%, respectively. Nonetheless, Germany is expected to retain its position as Europe's largest construction market with a forecasted return to growth this year, following a decade of decline, with gains of +1,2% to value it at € 20,2 billion. The UK - Europe's second largest market - is also expected to show gains of +1,5% in 2006.

Italy is expected to be the only country out of the ‘Big Five'to show a drop in construction output in 2006. Euroconstruct estimates the Italian market will fall -0,3% this year. The only other Euroconstruct country expected to be in recession in 2006 is Portugal, which is forecast to lose -3,2%.

Despite the revised forecast for this year, the group's estimates for the next few years remain unchanged with continued growth expected but at a slower rate than in 2006. The group estimates construction output in Europe in 2007 and 2008 to be +1,7 and +1.8%, respectively.

During the next two years, the strongest construction growth is expected in Eastern European countries and is predicted to be between +6,7 and +8,0%. According to Euroconstruct, investment in infrastructure in these countries is driving these high levels of growth. Nonetheless, these countries represented 4% of total construction output in 2005, so these predicted gains will have very little impact on overall growth.

Growth in Western Europe's construction output in 2007 and 2008 is forecast to be +1,5%. Out of the ‘Big Five' the highest growth over the next two years is expected in the UK, with gains of +2,8% next year and +3,6% in 2008, as it steps up construction work for the 2012 Olympics. Construction in Germany is predicted to continue growing over the next two years and a return to growth is also predicted for Italy in 2008. France and Italy's growth is also expected to continue but a slightly slower rates than in 2006.

* Euroconstruct is a group of economic forecasting companies based around Europe. The 19 countries surveyed by the network are: Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, Spain, Switzerland and the UK. For more information, visit www.euroconstruct.org