European growth to slow

19 March 2008

Euroconstruct, a group of economic forecasting companies based around Europe sees European construction growth slowing this year following a peak in 2006. According to the group, which compiles data on 19 of the region's largest construction markets, growth this year will slow to +2,4% from +3,7% last year. The slowdown will continue in 2008 with a +1,8% increase before picking up slightly in 2009 with +2,0% growth.

The strongest overall growth this year is expected to be in Central & Eastern Europe (CEE), where the largest market, Poland, will lead the way with a +10,6% increase. This will help the region's construction market to grow +7,6% this year, compared to +2,2% for Western Europe.

While growth in Western European construction is expected to slow over the next two years, the CEE region is forecast to go from strength to strength. The rate of growth is expected to pick up to +7,8% next year, with a jump to +9,7% in 2008.

The residential construction market is the main reason for the general slowdown across Europe. Growth in this sector, which accounts for 48% of European construction output, is expected to be just +1,3% this year, slowing further to +0,5% in 2008.

In contrast, both the non-residential and civil engineering sectors are expected to maintain more reasonable levels. Civil engineering output is forecast to grow +4,0% this year, with smaller increases of +3,3% in 2008 and +3,5% in 2009. Similarly the non-residential market is currently at a peak, with a +3,5% increase in output expected this year. Next year will see this slow to +2,9% and then 2,8% in 2008.

Big 5

Euroconstruct says the total value construction output this year will be €1417 billion across the 19 countries it covers. Interestingly, it says the largest market is Spain at €217 billion, which has overtaken Germany (€214 billion) this year. These two are followed by the UK (€204 billion), France (€193 billion) and Italy (€189 billion). Total construction output in the 'Big 5' countries is expected to hit €1020 billion this year – 72% of the European total.

There is expected to be positive growth in all five of these markets this year, including Germany, which bounced back from a decade-long construction recession in 2006. Spain is seen leading the way once again, with a +4,5% rise forecast, followed by Germany (+2,6%), the UK (+1,9%), France (+1,0%) and the persistently lacklustre Italy (+0,1%).

But for the strongest growth this year, Euroconstruct says the best prospects will be in some of Europe's smaller markets. Besides Poland, Slovakia should see output increase +8,8%, while the Czech Republic is forecast for a +6,1% rise.

In Western Europe the Nordic markets look promising, with Sweden forecast for a +8,9% rise and Norway also looking good with a +5,9% increase. Finland looks reasonable, with +3,6% growth expected in 2007, but Denmark is seen falling -0,1% after steep increases in 2005 and 2006.

Elsewhere The Netherlands is expected to see +5,3% growth this year, and Austria also looks strong with a +4,5% rise.

The only countries looking at a downturn in construction activity are Ireland – forecast for a -2,3% fall after more than 15 years of spectacular growth, and Portugal, which is expected to slip -3,9%.

Portugal is the only country in Europe that looks seriously troubled. This year's forecast decline will be the fifth consecutive year of falling construction output. According to Euroconstruct, the country's construction market has fallen from € 28,5 billion in 2003 to an expected € 24,3 billion this year – about a -15% fall. However, the recession is expected to bottom-out in 2008.

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