Gradual Slow Down
01 May 2008
Euroconstruct, a group of economic forecasting companies covering 15 European countries, predicts a gradual slowdown in the rate of growth for European construction output over the next three years. Its latest conference, held in Paris in December, heard that the main reason for this is an expected fall in new housing activity in Western Europe.
This sector grew +4,4% in 2004, but Euroconstruct is expecting that rate to slow to +0,7% this year before turning negative in 2006 (—2%) and 2007 (—1,6%). Although the overall fall in output looks low, Euroconstruct is concerned that the residential ‘property bubble’might collapse in key countries over the next few years. It seems Spain and particularly the UK look to be at greatest risk of an inflationary boom—and—bust cycle.
Whatever happens in the new build segment over the next three years, the same period should see the residential repair & maintenance market remain solid. Euroconstruct estimates there is a stock of 171 million occupied housing units in Europe, which will provide a ‘permanent reservoir of work’, and this is expected to provide +1,5% to +2,0% growth in Western Europe for the next three years.
In Eastern Europe however, the emphasis in the residential sector is on new build. Growth in this market is expected to accelerate from +2,9% in 2004 to +4,3% this year, before hitting +10,4% in 2006 and then cooling to +5,9% in 2007. The residential renovation sector is also expected to be buoyant, with growth from +3,7% to +5,9% over the next three years.
Euroconstruct expects the civil engineering market to see a similar pattern over the coming years, with massive growth in Eastern Europe contrasted by a cool—down in the West. Eastern Europe experienced growth of +5,5% in 2004, but this figure is expected to shoot up to +12,4% this year. Rises of +14,2% and +11,5% are forecast for 2006 and 2007.
Western Europe saw civil engineering output rise by just +1,7% in 2004. Euroconstruct expects growth to improve to +2,7% in 2005, before slowing back down to +2,3% in 2006 and +1,9% in 2007. However, growth in civil engineering in both Eastern and Western Europe, as well as overall, is expected to be higher than growth in the residential and non—residential building markets.
The non—residential market looks set for moderate growth in coming years. The fastest growing market is expected to be the new build sector in Eastern Europe, which recovered from recession last year and is forecast for +6,9% to +9,9% growth over the next three years. The market for non—residential renovation work will be more subdued at +4,6% to +6%.
As with the other sectors of the industry, growth in the Western market for non—residential construction is much lower than in the East. The new build segment is expected to see +2,6% growth this year, following two years of shrinking output, with an improvement to +3% in 2006. Expansion of the repair and maintenance sector meanwhile is forecast to be weaker, with just a +0,8% expansion this year. A moderate increase to +1,3% growth is expected in 2006 and 2007.
It is clearly the Eastern European construction markets that have the greatest growth potential over the coming years. At the head of the pack is the region's largest economy, Poland, where Euroconstruct expects to see +5,4% annual GDP growth from 2005 to 2007. This is followed by Slovakia (+4,8%), Hungary (+3,8%) and the Czech Republic (+3,4%).
Economic growth in Western Europe will be subdued by comparison. Of the ‘Big Five’ economies, the UK and Spain will lead the way with +2,7% and +2,6% annual GDP growth over the next three years. France is expected to be close behind with +2,4% growth, while Germany and Italy look weak with +1,8% and +1,6% growth.
The Nordic region looks generally strong, with GDP growth for Denmark, Finland, Norway and Sweden put at between +2,4% and +3,0% over the next three years. The other country of note is Ireland, which is expected to see annual economic expansion of +4,4%. The remaining smaller European countries are expected to see smaller rises, with GDP growth put at between +1,8% and +2,5%.