EUROFER update on construction industry in Europe
The EU construction sector registered robust growth in the growth in the fourth quarter of 2018, although the rate of expansion was less vigorous than in the previous quarters of 2018. EU production activity rose by 4.3% YoY in the fourth quarter of 2018, bringing total growth over the whole year 2018 to 4.8%. This growth rate is equal to the pace of expansion registered in 2017. The EU construction industry was one of best performing steel using sectors over the past two years.
In the fourth quarter of 2018, construction output rose in almost all reporting countries; only in Sweden did production activity fall compared with the same period of 2017. Output growth was particularly strong in Central Europe; Poland and Hungary registered double-digit rates of expansion. Activity rose at a solid pace in most western European countries, despite a mild moderation in the YoY growth rate in the final quarter, in comparison with the first three quarters of the year. Meanwhile, construction activity in the UK grew only slightly in the fourth quarter of 2018, reflecting falling order intakes and sentiment increasingly coming under pressure on a par with economic indicators and heightened political and economic risks.
In Western Europe, solid demand for residential and non-residential buildings remained the most important growth driver of production activity in the construction sector. The residential property market in most western European countries has staged a rebound over the past few years. In some countries there are even signs of overheating; the existing tightness in supply of affordable housing has been exacerbated by the migrant inflows. The sector itself is facing capacity issues, not only with regards to production capacities but even more so with respect to the availability of skilled labour. Moreover, in several countries the public authorities have long backlogs in granting building permits.
Non-residential construction demand has benefitted from rising private and public investment. The strong performance of the housing sector and the resulting increase in the number of new dwellings and the upgrading of the existing housing stock has led to the development of new retail and leisure projects. Instead, the general economic rebound has driven demand from companies in industry and services for storage and logistic facilities, offices, commercial and industrial buildings. For similar reasons, publicly funded non-residential investment in healthcare, education and other community services has also risen.
In the Central European countries, the most important driver of construction activity growth is infrastructure demand. The availability of EU funding, as well as the improving economic performance of the main economies in the region and as a consequence larger domestic budgets for infrastructure work, has supported new civil engineering projects and the renovation and modernisation of existing infrastructure. The upsurge in residential and non-residential activity is also gaining momentum.
Construction industry forecast 2019-2020
The outlook for the construction industry is relatively positive, despite the fact that this sector also will feel the impact of weakening economic fundamentals in the EU. As a consequence, growth in construction investment is expected to moderate in 2019 and 2020. Nevertheless, taking into account that construction companies in the EU have remained rather positive in their assessment of current and expected workloads, the slowdown in construction activity growth will be gradual and rather mild. Particularly in 2019, significant order backlogs will guarantee healthy level of capacity utilisation in the sector.
Demand for residential projects will continue to be strong, although the boom conditions as seen in several countries in the recent past will come to an end. Housing demand is supported by relatively high levels of consumer confidence, rising wages and still low cost of financing. Demand for both new work and renovation and modernisation activities will continue to grow. The non- residential sector is at risk of a more pronounced slowdown in private construction investment, reflecting higher levels of business uncertainty in general and rising concerns on the performance of the export sector in the EU in particular. The unknown impact of Brexit and the potentially damaging effect of global protectionism are the major factors influencing corporate investment decisions.
Public construction investment in non-residential and civil engineering projects will remain a growth driver over the forecast period. Several national governments have launched construction programmes geared at improving the country’s transport, energy and digital infrastructure. Examples are the ‘Grand Paris’ scheme in France, railway maintenance, electrification and development programmes in Italy as well as the completion of projects recently started or underway in Central Europe. A general trend across the EU is the support for projects aimed at enhancing the energy efficiency of residential and non-residential buildings.
Meanwhile, supply constraints will remain an issue for the time being. This implies that potential production growth is limited by the tightness of production capacity in the sector as well as by serious labour shortages.
Total EU output is forecast to rise by 2.1% in 2019 and by 1.7% in 2020.
Source : Strategic Research Institute