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Europe has passed the construction low
17.06.2011
Growth will be hampered by the international debt crisis
Construction in Europe has declined for the fourth year in a row. The downturn is about to end this year, but there is variance by country and region. In 2011, growth was highest in Poland, but the Nordic countries also achieved good growth, while France and Germany achieved reasonable growth. In Spain, Ireland and Portugal, construction is still clearly declining. Great Britain and smaller Central and Eastern European countries are also seeing a decline.
Last year, GNP grew by two per cent in Europe. In particular, growth was
achieved from the recovery of foreign trade and consumer spending, increasing
the companies’ faith in the future. Investments are predicted to increase
during this year.
The recovery in employment and the improved
economic prospects are driving consumer spending, which is increasing fastest
in the Nordic countries and Central and Eastern Europe. Spending is only
anticipated to decrease during 2011 in Portugal and Ireland.
Although
economic growth is anticipated to remain steady, there are some risks as well.
Last year, recovery measures by governments ameliorated the construction
downturn, but the increasing troubles the economy is facing are creating
pressure to cut expenditure and make savings. Economic balancing measures
combined with inflation are eroding the consumers’ purchasing power. In
addition, a tightening of financial policy threatens to delay public
investments and construction, especially in Eastern Europe and generally in
the infrastructure construction sector. Other financial threats are also
reflected in construction, such as the rise of energy and construction costs.
New
construction slowly picking up
Of all the construction
sectors, the largest fall from the industry’s peak year, 2007, was seen in the
construction of new residential buildings. While around 2.5 million new
residential buildings were completed in 2007 in the EUROCONSTRUCT countries,
less than 1.5 million will be completed this year. However, the volume of new
housing production will rise during 2011 to an annual growth of slightly under
five per cent.
Office construction has survived the financial
crisis better than housing construction. Its total value shrank by around 13
per cent between 2007 and 2010, while new construction took an even bigger
hit, falling by almost a fifth. Office construction lags behind economic
trends, and it is not predicted to grow until 2012. The construction of new
offices suffered from the fall caused by the financial crisis more than did
renovation, which was especially evident in office and industrial
construction. The situation is better in the public sector due to, for
example, the recovery measures taken by governments.
Survivors
of renovation and infrastructure construction
The value
of building renovation in Europe is currently one and a half times that of the
construction of new housing. Over the past few years, the changes in
renovation and infrastructure construction have been minor compared to those
in the construction of new housing. In wealthy countries, construction will
continue to be increasingly focused on the renovation of existing buildings.
The driving factors include improvements in energy efficiency within the
current building stock, supported by public funding in many countries.
Infrastructure
construction has been stimulated in many European countries. Up to 2008–2009,
the infrastructure construction market remained almost unchanged, but in 2010
construction volume declined by slightly under five per cent. The problems of
the public economy act as a brake on the launch of new projects, and the
volume is expected to continue to drop during 2011. In the future, Eastern
Europe will also see smaller growth, as EU funding is shrinking and national
investment funds are facing hard times.
As a result of the
financial crisis, construction in Europe fell by a total of more than 15 per
cent over a four-year period, back to 1998 levels. Recovery from the crisis
has been uneven. The V curve of fast recovery, a fast drop followed by a fast
rise, was seen, for example, in Finland, Sweden, Norway, Germany and Poland.
Many Central European countries saw the U curve, spending a longer time at the
bottom than in the V curve. However, in several Southern European countries
the U curve is developing into a ‘bath tub curve’, where the time spent at the
bottom may stretch to an extended period in the difficult economic situation.
Although construction in Europe saw a sharp overall downturn, it has returned
to a normal, healthy level in most European countries.
Considerable
regional difference in construction market prospects until 2020
Construction
in western Europe is expected to grow by less than two per cent per annum
until 2020; a slightly slower pace than the GNP. The prospects are best in the
new EU countries in central Eastern Europe, where the need for construction is
huge as the countries are trying to reach the same level of prosperity as the
rest of Europe. Construction is anticipated to grow by 4.5 to 5 per cent per
year.
In the Nordic countries, both GNP and construction is
anticipated to grow faster than the European average. In wealthy West European
countries, construction will grow slowly (1.5 per cent per year), focusing on
renovation and the construction of new housing.
Southern
European countries are only expected to reach slightly over the 2010 level in
2020. The economic problems and increased debt will impact construction in
these countries for a long time. There is a large oversupply of housing and
business premises, slowing down new construction.
Significant
factors affecting the demand for construction include the ageing population
and the buildings, and the increasing trend of living alone (an increase in
the number of households). Population growth is not a significant factor in
Europe. The continuous urbanization does, however, show as a need for
construction. Another important factor is the tightening of requirements
related to improving energy efficiency.
The future of
Europe’s construction market is the theme of the 71st conference of the
EUROCONSTRUCT expert network in Helsinki on 16th–17th June 2011. Both the
short-term construction outlook to 2013 and the medium-term outlook to 2020
will be discussed at the conference. The conference is arranged by VTT,
Finland’s member in the EUROCONSTRUCT organisation. Almost all the European
countries are members in the organisation.
Information about EUROCONSTRUCT Conference in Helsinki
Media material
Total Construction per Capita in European areas
Value of New Construction and Renovation in Euroconstruct Countries
Additional information
Pekka Pajakkala
Senior advisor, VTT, President of the EUROCONSTRUCT
+358 400 476 249