More doubts and less speed, but the European construction sector will keep growing

By Published On: 05/12/2016Categories: Conferences, Market research

The Euroconstruct winter conference began last November 25th without many expectations of good news for the construction sector in Europe. It was the first opportunity to assess the effects of the Brexit referendum on the construction industry, and as expected the new forecast does not contemplate as much growth as the previous summer forecast. The prospect of European construction growing slightly above 2% may not be very exciting, but we must be aware that this is the average of the 19 countries covered by Euroconstruct, and averages often distort reality.

The reality described at the Euroconstruct conference is one of deep differences among countries. At a time like this in which the economy is still not completely out of the woods, some European construction markets are reaching output levels unseen in the last 20 years. When we think of countries where the construction sector is achieving production highs, we probably picture a few Scandinavian countries and we tend to dismiss the phenomenon as merely anecdotal. But the Euroconstruct figures show that nine countries are expected to reach production records, or to get very close, including heavyweights like the United Kingdom or the Netherlands. This group of countries stands for 40% of all European construction output, so we can conclude that a substantial part of Europe is clearly in the best part of the cycle.

But even in those countries where the construction sector is in a healthy shape, the growth rates are low. This is not much different from the situation of the global economy where, according to Sergi Martrat, Deputy Chief Economist at Banco Sabadell, low growth is becoming structural worldwide. The experts from Banco Sabadell were invited to describe the macroeconomic context which will affect the construction industry, and their presentation reminded us how not every threat to growth is of an economic nature. We should worry not just about weak investment or productivity, we must also be aware of social inequality or the depopulation of the political centre.

The conference also had a special guest from the European Commission, who presented an update on the strategy of the EU concerning public procurement. Antonio Paparella, Team Coordinator for Sustainable Construction, brought figures that measured how public investment is contributing to the European economy, but he was also very honest admitting that public authorities do not always make the most of their funds, or pointing out that tenders are granted mostly to large domestic companies. The new public procurement procedures will address those shortcomings, shifting to digital methods which should encourage collaborative work, a larger participation of SMEs and ultimately, a better use of resources.

There was also the chance to look beyond the European borders and check the prospects for the construction sector in the rest of the world. Antonio Mura from Cresme put the European market in the global context to show us that the old continent only holds an 18% production quota. Construction activity has experienced a notorious “centrifugal” phenomenon from developed economies to emerging economies: in 2000 two thirds of production came from developed countries and in 2015 it had been reduced to one third. But the phenomenon could have stabilized by now and it may have reached a certain ceiling. Therefore, the growth potential of Europe will still be below that of the rest of the world, but perhaps the gap will not be as high as in recent years.

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