EUROFER Update on Construction Industry in Q1 and Forecast
The performance of the EU construction sector over the first quarter of 2019 was surprisingly positive, supported by mild weather conditions. The rate of expansion remained very close to the average quarterly growth rate of production registered in 2017 and 2018. The sector is set for a third consecutive year of relatively strong production growth. EU production activity rose by 4.9% year-on-year in the first quarter of 2019; the ninth quarter in succession of robust expansion in the EU construction sector. The sector remained the best performing key steel using sector.
In the first quarter of 2019, construction activity grew in all reporting countries except Slovakia. Output growth was particularly vigorous in Spain, Sweden, Austria, the Netherlands and Poland. In contrast, production activity stabilised around the year earlier level in France and registered only very slight growth in Italy. Meanwhile, activity rose at a healthy pace in the other European countries.
In Western Europe, robust order books for residential and non-residential building projects supported the continuation of solid production growth in the sector. Mild weather conditions in the first quarters provided additional support to activity growth in the majority of the reporting countries. In Spain, Germany and the Netherlands real estate markets remained in an expansionary phase, driven by strong private demand for housing and supported by rising incomes and easy access to financing. In tandem, private and public investment in non-residential construction also gained traction. Moreover, there is evidence that civil engineering activity is also gaining track in several countries, owing to improving investment in infrastructure projects.
In the Central European countries, with Poland as most important market, construction activity growth remained driven by strong and steady infrastructure demand. The pace of EU-funded investment picked up in the first quarter owing to an increase in financial transfers. In addition, the continuation of healthy economic conditions in the region provided support to central and local government investment. Meanwhile, residential and non-residential activity continued to gain momentum across the region.
Construction industry forecast 2019-2020
Prospects for the EU construction sector are relatively positive. The EU construction confidence indicator remained well above its long-term average over the first half of this year, thanks to the steady industry managers’ assessment of order books, employment expectations and current activity levels. Nevertheless, the rate of expansion of construction activity will gradually slow. This is not only due to demand-related factors such as weakening economic fundamentals and a general cooling of market dynamics after several years of strong growth, but also the result of supply-side issues, most importantly bottlenecks in construction capacity and a lack of skilled labour.
In 2019, the slowdown will be cushioned by solid order books, whereas in 2020 it will become more visible in the activity growth rates in construction in most EU countries. Nevertheless, the construction industry will outperform the other steel-using sectors with regards to the expected trend in production activity.
The residential construction market is expected to remain relatively buoyant as in several countries there is still a shortage of housing with demand outweighing supply. Nevertheless, this market will be facing a cyclical slowdown after a multi-year rebound, much in tandem with weakening prospects for the EU economy and the related faltering growth of public and private construction investment. The pressure on the market from refugee housing is also expected to ease. Meanwhile, improving wages and the low cost of financing will continue to provide support to demand for both new housing and renovation and modernisation work.
Intensifying headwinds from weakening business confidence and corporate investment will hamper production activity growth in the non-residential sector, particularly in commercial and industrial construction. The struggling manufacturing industry in Europe will most likely postpone investment, particularly in projects related to the performance of the export sector. Moreover, the still unknown impact of Brexit on business conditions in the EU also has the potential to delay investment decisions.
Meanwhile, the role of civil engineering as a growth driver for total construction growth is expected to strengthen over the forecast period. Infrastructure projects aimed at securing and promoting economic development and growth will benefit from increasing investment by national governments or public-private partnerships. This is particularly true for energy, transport and communication network projects. In addition to initiatives financed by national authorities, the EU Cohesion Policy will invest €4 billion of EU funds in 25 large infrastructure projects in 10 Member States. The investment package involves Bulgaria, Czechia, Germany, Greece, Hungary, Italy, Malta, Poland, Portugal and Romania. The projects cover a wide range of areas: health, transport, research, environment and energy.
Total EU output is forecast to rise by 2.9% in 2019 and by 1.3% in 2020.
Source : Strategic Research Institute