European construction industry: no speedy recovery in sight

Hopes of a speedy recovery for the European construction industry have been dashed.

In several of the 19 Euroconstruct countries the euro crisis is continuing to hold construction activity in check. This trend is exacerbated by the situation of the world economy, which remains difficult. In previous June construction experts from the Euroconstruct Group expected construction activity to decline by 2% during 2012, but they have now revised this forecast to a 4.7% decline. Contrary to their original forecasts, experts now predict further losses of around 1.5% for 2013. Any recovery by the end of the forecasting period in 2015 is only expected to be moderate.

High unemployment, stagnant economic growth or even economic downturn in many places as well as the strained financial situation of the public sector are curbing construction demand in all three construction segments.

In 2012 civil engineering looks set to be the most heavily affected with a decline of around 7.5%. Caution on the part of the public contracting authorities in Spain is once again very notable in this segment. Downturns in the residential and non-residential construction segments of around 3.5% and a good 4% respectively are not quite as severe. All three sub-segments should also probably shrink in 2013.

With construction work forecast to be worth a total of 1.27 trillion € (in 2011 prices) for 2013, construction in the 19 member countries should fall just short of the level reached in the mid-1990s. The soaring growth in construction demand seen between 1997 and 2007 has therefore been cancelled out in the six years since 2008.

Following the decision to introduce the euro, especially the interest rates in the Southern European countries fell considerably, making it much cheaper to take out loans. This marked the beginning of the “golden years” for the European construction industry, which were ultimately characterized by market excesses. The international financial crisis, the global economic crisis and, in the end, the euro crisis have had and are still having, a devastating effect on construction activity in Europe. Compared to its 1996 level, the European construction industry will be “starting from scratch” again in 2014.

However, the signs do not point to a crisis everywhere. Norway, Switzerland and Germany are among the euro crisis winners since these countries are attracting the capital of many investors thanks to their economic stability. Such investors often invest in tangible assets like real estate.

Moreover, Ireland is currently proving that economic and financial problems do not necessarily need to turn into a “never-ending story”. The improvement in the country‘s general economic situation should have a positive effect on construction demand in the near future. After sustaining bitter losses, construction activity in Ireland should pick up clearly as of 2014.

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