Growth to peak this year
01 May 2008
Construction output is expected to reach € 1214 billion this year across the 19 Euroconstruct countries*, a +2,2% increase on the € 1188 billion seen last year. It will be the region's third consecutive year of rising construction output, following a dip of -0,2% in 2002.
The highest growth this year is expected to be among the Eastern European countries. The largest economy in the region, Poland is forecast to lead the charge with a +7,7% expansion in construction output this year and a further +9,5% rise in 2006. The Czech Republic should not be far behind, with +6% growth this year and +6,5% the next. Hungary and the Slovak Republic are expected to be more subdued, but still above average.
However, construction output in these four high-growth markets is worth only about € 48 billion per year-just 4% of the total for the Euroconstruct 19. The major European markets are Germany, the UK, Italy, France and Spain-the ‘Big 5’- which were worth € 874 billion (US$ 1049 billion) last year, or 72% of the total.
Of these, Spain (+4,4% growth this year) and the UK (+2,4%) continue to offer the best opportunities. France (+2,9%) also looks promising this year, following a +3,4% rise in output in 2004, but historically it has not seen the same consistent growth experienced in Spain and the UK. The Italian construction market is expected to expand just +0,9% this year, before falling to +0,5% in 2006 and 2007.
Even worse is the German market, which is still in the dire recession that began in the mid-1990s, following the post-reunification building boom. German construction output is expected to fall a further -2,2% this year, with an additional -1,4% drop in 2006. However, Euroconstruct is predicting an end to the recession in 2007, with a +1,3% rise in output.
Germany is still Europe's largest construction market, with an annual output of € 194 billion. However, its continued decline and the growth of the UK, currently Europe's second biggest market, mean that by 2007 they will almost be the same size, with UK output expected to hit € 192 billion.
One of the key reasons for reduced growth is a slowing of new residential construction, a sector where Spain accounts for 25% of the European total. According to Anders Bjerre from the Copenhagen Institute for Futures Studies (CIFS), Euroconstruct's Danish member, residential new-build activity peaked last year. While repair and maintenance activity is expected to continue to grow, the prospect of rising interest rates is cooling the new build market.
He expects a 'soft landing’for the residential market as a whole, which was worth € 555 billion last year, or 47% of all European construction output. “It is not a very optimistic prediction, but it is not to bad either,”said Mr Bjerre. “There are lots of factors, but interest rates are the main one,”he concluded.
In contrast, the non-residential sector is expected to recover over the next three years, after lacklustre growth of just +0,6% in 2004. “The sector is expected to be far better over the next three years, at about +2% growth per year,”said James Hastings of Experian, Euroconstruct's UK member.
“The average will continue to be brought down by the weakness of Germany, but even that country will turn positive in 2007,” he said. According to Mr Hastings, Europe's non-residential sector was worth € 373 billion last year, or 31% of all construction output.
Civil engineering output is expected to increase +2,6% this year to € 265 million, or 22% of all European construction. According to Yngve Abrahamsen of Euroconstruct's Swiss member, KOF, the highest growth will generally be in Central and Eastern Europe, although Spain and Portugal are also expected to do well next year.
* - 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, Sweden, the Slovak Republic, Spain, Switzerland and the UK. For more information, visit www.euroconstruct.org