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Construction Market The European Construction Market By Erich Gluch by Samuelpowers


									            Construction	Market

The European Construction Market 1990-2009
By Erich Gluch, IFO, Euroconstruct

The European construction industry is currently passing            euphoria as well as the internet hype; and in 2003 to 2005.
through its 13th year of uninterrupted growth. And if the          In these three years, several countries were experiencing
forecasts of the Euroconstruct experts are right, three more       considerable growth in the residential construction sector;
years of growth lay ahead. This is the result of excellent         furthermore, civil engineering activities were accelerated in
teamwork, as in this long period there were always weak            many countries – here again the infrastructure domain was
periods in some countries, which were, however, balance            outstanding.
by benevolent developments in other countries. The total
construction output did not move in the first half of the
1990s and amounted in 1996 – as in 1991 – to about EUR 1.1         The forecast
bn (all values are adjusted for price on the basis of 2005). In    In the forecast period, development is not expected to be
the years that followed, the total construction output grew –      unfavourable. The continuously high demand in the residential
despite a weak period between 2001 and 2003 – by about EUR         construction sector as well as civil engineering in 2006 will
200 bn to EUR 1.300 bn in 2005 – an approximate average            lead to growth rates in total construction output of 3%
growth rate of 1.8%. The average growth rate during the            among the Euroconstruct countries, which is higher than GDP
forecast period 2006-2009 should reach around 2% annually;         growth in the Eurozone (about. 2.5%). Nevertheless, in the
hence the total construction output will exceed the mark of        years 2007-2009, the differences between the average growth
EUR 1.4 bn by 2009.                                                rate of total construction output and GDP will be relatively
                                                                   small. With such a long-term analysis, the economic cycles
                                                                   can be easily identified. Evidently, in the first half of the
                                                                   1990s, the European construction industry suffered from a
                                                                   peculiarly weak period. The average growth during the years
                                                                   1992 and 1996 was around 0.1%. In the four years that
                                                                   followed, average growth reached 2.6% annually. From 2001
                                                                   to 2003, demand again weakened considerably: on a yearly
                                                                   basis average growth rates were around 0.7%. During the
                                                                   consequent boom period, which is the years 2004-2009, the
                                                                   resulting growth rates – calculated on the basis of the recent
                                                                   forecast for the years 2006 to 2009 – are expected to be
                                                                   around 2% per annum. Considering that boom and bust cycles
                Graphic 1. Total construction output in Europe     are hardly longer than four to five years, it should not surprise
              1991-2009 – EUR bn, in real terms, 2005 prices.      if in some years figures for 2009 are revised downwards. In
                                                                   the main focus of construction activities is still the residential
This performance is partly fading away, if the development of      construction sector, with EUR 642 bn in 2005, which is nearly
the total construction output is compared with the GDP in the      half (47.7%) the total construction output of EUR 1308 bn.
Eurozone during the same period. Since the early 1990s up to the   New residential construction with EUR 322 bn outpaced R&M
year 2005, the growth in total construction volume exceeded        (EUR 302 bn) only slightly. With a share of 36% (23.1% in
the GDP growth only in five years: in 1994, which was mostly       residential plus 13.2% in non-residential), R&M activities on
due to the strong impulse from the residential construction        existing buildings had a substantial volume. The smallest sub-
sector; in 1999, carried by the massive non-residential            sector, civil engineering, with EUR 276 bn, had a share of
construction investments by the end of the millennium              21%.

TheRegion    May - June 2007
      Construction	Market

                                                                      residential construction in the years 1997-2000, as interest
                                                                      rates ware decreasing and the overall economic development
                                                                      was positive (GDP: on average +3% annually). Even two-digit
                                                                      growth rates were reached (Czech Republic, Finland, Poland).
                                                                      Only Austria, Switzerland and Germany were slowing this
                                                                      tendency down, where – despite stable demand for one- to
                                                                      two-family dwellings (an effect of the newly implemented
                                                                      Eigenheimzulage) – a rapid downswing in the construction
                                                                      of multiple dwellings set in. In 2001 and 2002, stock
                                                                      markets around the world where experiencing considerable
                                                                      slumps. Uncertainties among the population were growing.
Graphic 2. Total construction output in Europe by sectors in 2005.    Nevertheless, the residential construction sector in the 19
                                                                      Euroconstruct countries would have been positive, if the
In the course of the 14 years from 1991 to 2005, total                heavyweight Germany (with -6%) had not reduced the volume
construction volume increased on average by 1.2% per year             strongly. In the years 2003-2006, low interest rates and
in the 19 Euroconstruct countries. Residential construction           rapidly growing real estate prices pushed the demand for flats
(+2% annually) was clearly outperforming the average, while           in some countries up. In the year 2007, developments will
civil engineering reached only growth rates around 0.8%               still be relatively benevolent. Not until 2008 and 2009 will
annually, non-residential construction merely 0.5% annually.          there be an obvious relaxation, as, in particular, the long-
Civil engineering will be outstanding during the forecast             standing drivers of growth Spain and Ireland, as well as the
period 2006-2009, with average growth rates around 3% per             large countries France and Italy, will show declining demand.
annum. Residential construction with about 1.5% growth
rates annually is not expected to reach the average growth            Non-residential sector
rates of total construction output (+2% annually).                    In the year 1993, the non-residential construction sector –
                                                                      strongly affected by private and commercial building activities
                                                                      – could not escape the macroeconomic recession in Europe
                                                                      and declined by around 6%. This negative trend was equally
                                                                      affecting the five-largest Western European countries. Then
                                                                      the non-residential sector evolved superb in the years 1998-
                                                                      2001, led be Finland and Hungary, but developed equally
                                                                      well in the Netherlands and Denmark. In Spain, France, Italy
                                                                      and Great Britain, growth rates were above the average as
                                                                      well. After these four years of strong growth, four weak years
                                                                      followed. From 2002-2005, average growth rates of 0.3%
                                                                      annually were reached in the non-residential sector of the
                                                                      19 Euroconstruct countries. Even the good development in
                                                                      Spain and Great Britain could not improve the figures. In the
                                                                      forecast period 2006-2009, an average growth of around 2%
        Graphic 3. Total construction output in Europe 1991-2009,     per year is expected. In Portugal and Ireland as well as in
                                  Index 2005 = 100 (in real terms).   all four Eastern European countries, growth rates above the
                                                                      average are forecasted. A downward sloping development is
                                                                      only predicted in the case of Portugal. In civil engineering
                                                                      the development was relatively favourable, even though the
                                                                      first half of the 1990s was disappointing, as from 1999-2003
Residential sector                                                    average growth rates reached 2.5% annually. The point has
An analysis of the residential construction sector, considering       to be emphasised that during this period Ireland heavily
the economic cycle, shows some peculiarities: in 1994, the            invested in infrastructure. Apart from that, growth rates were
sub-sector achieved an increase in growth of 5% for the 19            above the average in Spain and Italy. After a slight recession
Euroconstruct countries. Half of the contribution to growth           in the years 2004-2005, the Euroconstruct experts expect
came from Germany, where the German reunification and                 strong growth for the forecast period 2006-2009, led by the
massive population growth as well as extraordinary public             Eastern European countries as well as Ireland and Sweden.
subsidies encouraged a short boom in residential construction.        On average, a growth rate of 3% is expected in the 19
Numerous countries showed an impressive development in                Euroconstruct countries for this period.

                                                                                                            TheRegion   May - June 2007
       Construction	Market                                                    Infrastructure	/	Slovenia

Country cases
In 2005, a total construction output of EUR 1308 bn was
realized in all Euroconstruct countries. Nearly three quarters
                                                                     Tunnel Brinje –
(73%) came from the five largest countries – Germany, the UK,
Italy, France and Spain. The remaining 10 Western European
countries had a share of 24%, the four Eastern European
                                                                     the European Safest
countries only of 4%. Among the Eastern European countries,
the economic cycles are much higher as compared with the
Western European countries, especially because the total
construction volume is evidently smaller. With the exception
of Slovakia, the total construction output in these countries
increased in the last 14 years by 3.5% annually. The total           Among 51 tunnels in 13 EU countries that were tested in
construction output in Poland should even increase by 10%            2007 by European Tunnel Assessment Programme (EuroTAP),
annually during the forecast period. Total construction output       the Tunnel Brinje won first place. It is the most safe tunnel
of the Eastern European countries 1991-2009 Index 2005 =             in Europe for 2007.
100 (in real terms, 2005 prices).
                                                                     Tunnel Brinje is on highway Zagreb-Split and has 2 tubes.
                                                                     The left one is 1542 m long, and the right one - 1540 m. The
                                                                     tunnel, opened in 2004, was built by New austrian method.
                                                                     The investment was EUR 36 mln. The facility is equiped with
                                                                     a modern technology and is monitored 24/7. There is safe
                                                                     fire alarm system and there are users passages from one tube
                                                                     to another. n

Graphic 4. Total construction output in Europe by country in 2005.

A special case is Ireland. Since 1992, in some years even two-
digit growth rates could be observed there. According to the
recent forecast, this record growth will come to an end in 2008                                              Source:
with a decline of 2.5%, after a weak flattening in 2007.

Residential construction will have a strong impact on
future construction demand, even though civil engineering
is forecasted to grow strongly in the upcoming years, too.
For that reason, the long-term cyclical development in the
European residential construction sector – just as done for the
total construction volume in billions of euro – will be shown
on the basis of housing completions. According to the figures,
housing completions have grown from 1.85 million units in
1992 to 2.36 million units in 2005. The share of residential
completions in the Central and Eastern European countries is
constantly very small, and amounts from 1992-2005 average
only 8%. Despite high growth rates during the forecast period,
the share will merely rise to 8.5%. n

TheRegion   May - June 2007

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