Europe has passed the construction low
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.
Senior advisor, VTT, President of the EUROCONSTRUCT
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