25 March 2008
The volume of new construction equipment sold in Europe last year increased +14% on 2005. Western Europe saw a +10% rise, while sales in central and eastern Europe were up a massive +58%.
This remarkable growth has increased the significance of eastern Europe. Last year equipment sales in the region stood at about 14% of those of western Europe, compared to 10% in 2005. We saw significant growth in Russia last year, and the Polish market also recovered. The only difficult country was Hungary, where the economy sagged due to its twin deficits.
In Western Europe, the German market finally began to recover from the 10-year recession that followed the post-reunification construction boom of the early to mid-1990s. The volume of equipment sold in Germany increased by about +30% in 2006, the strongest growth of any Western European country.
Spain was also notable for its +19% growth, while the French market was up about +10% and the UK +8%. Increased sales of smaller equipment saw volume sales growth about +5% in Italy last year, but in value terms, the market was flat.
The only laggards in Europe last year were Portugal, where unit sales fell -20%, and Finland, where the market was a little mixed, but finished down -3%.
Growth was driven by demand for larger machines linked to the civil engineering market last year. Articulated dump truck sales were up +30%, excavators +20% and compaction equipment saw a +18% rise. Backhoe loader sales were also good, with a +18% rise. Conversely, sales of compact equipment (machines less than 5 tonnes) were only up about +8%.
The market's growth over the last few years in Europe has been against the backdrop of fairly lacklustre GDP growth. In these terms, the current buoyancy – sales are at record levels and significantly higher than the last peak in 2000 – is a little perplexing. However, there are several key reasons why the market is so bullish.
First, with GDP growth of about +3% last year, the best this decade, the European economy is growing at a reasonable and sustainable rate without booming.
Second, Europe has under-invested in its construction equipment fleet for several years, and the recent growth is in part a symptom of the need to renew it with more modern and productive machines. The pronounced shift from contractor-owned equipment to rental in Europe over the last 10 years or so has also been significant, stimulating greater sales and more aggressive fleet renewal.
CECE expects the European equipment market to remain strong this year. We see growth of between +5% to +10% - good, but not as robust as this year.
Furthermore, we expect this trend of moderate growth to continue until around 2010. Europe seems to be on a 10 year business cycle, and the last peaks in equipment sales were seen around 1980, 1990, and 2000.
The troughs between periods of growth are shorter and shallower than they used to be.
It also appears that the troughs between periods of growth are shorter and shallower than they used to be. When the downturn comes, and it will come, we expect it to last for only two to three years, and the fall in sales to be only about -10% over that period.
Rest of the world
Outside Europe, the only major equipment market to fall last year was North America, where sales declined by some -5%. CECE feels this is more of a ‘correction', following three years of unsustainable growth, than the start of a recession, and the market should start to grow again in the second half of this year.
Elsewhere, Japan saw growth of about +10% last year, and China boomed with a +30% rise. India was also strong with growth of at least +20% last year, with no signs of a slowdown for the short- or medium-term.
Somewhat surprisingly, developing South East Asia was fairly flat. Thailand's military coup had an impact on that market – one of the most significant in the region – and the negative effects were also seen in neighbouring countries. There is also some evidence that the market in second hand machines grew
The Middle East, Africa and Latin America all saw good growth last year, driven by persistently high commodity prices. Australasia however, was fairly flat, with a downturn in New Zealand being offset by improved sales in Australia.
In general, CECE expects the world market to move along similar lines to Europe over the next few years. Reasonable growth is expected until around 2010, followed by a relatively mild downturn.