Slow growth for Europe

20 March 2008

According To Global Insight's Recently released Global Construction Outlook, Europe will see slightly weaker growth than the world average over the next five years. Adjusted for inflation, Europe will see +2,5% average annual growth compared to a world average of +2,7%. The global average is weighed down by softness in the large US residential sector, while much of Asia, Latin America and the Middle East will enjoy strong growth.

Being a well-developed region Europe tends to grow more slowly than most of the rest of the world. Indeed, Western Europe will see slightly slower growth of +2,4%, while the outlook for Eastern Europe is stronger at +4,1%.

At an estimated US$ 86 billion (€ 64 billion), the Eastern European market – which includes Russia and Ukraine, but not the Baltic States – represents only about 8% of the Western European market size of US$ 1,1 trillion (€ 814 billion). However, Global Insight forecasts that by 2015, its more rapid growth will allow it to equal about 10% of the Western European total.

Opportunities

Over the next five years, Global Insight expects the growth leaders in Western Europe to be Greece, Ireland and Finland. Spain and Norway, two of the stronger growing countries in recent history, will remain above the European average, but weaken from their past record.

In the case of Norway, more stable energy prices in the forecast will slow the construction market for this large oil exporter. In Spain the building boom of the last 15 years means the current supply of new building stock, particularly in of the residential sector, is catching up with demand.

Within Eastern Europe, Bulgaria, Romania and Slovakia look to lead the pack while Hungary and Poland grow more slowly, although still above the average for Europe as a whole.

Non-residential structures are the growth leader in both the East and West, with +4,6% and +3,1% growth respectively. According to Global Insight it will generally be offices and commercial buildings driving the growth in the West and industrial buildings in the East. Both regions have mixed outlooks for institutional structures (schools, hospitals, etc).

Residential structures and infrastructure growth have a similar outlook in the two regions. Western Europe will see growth of +2,0% in infrastructure and +2,1% in non-residential, while in Eastern Europe both sectors will grow at about +3.8%.

Infrastructure spending outpaced residential spending in Eastern Europe in recent years, driven by the need for investment for accession, as well as for energy distribution within Russia in particular. Infrastructure spending is traditionally concentrated in roads, water, sewer, and other utilities which tend to move with residential construction.

With energy prices stabilising and accession largely complete for the major countries, Global Insight sees some of the impetus in infrastructure construction wearing off. The company says this will see the sector track more closely to residential construction in the future.

The total European market in 2007 represents just under a third of the global construction market size of US$ 3,74 trillion (€ 2,77 trillion).

• For more information, visit www.globalinsight.com

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