17
march 2015
international
construction
ECONOMICOUTLOOK
Improving prospects
>
Improving prospects
T
he latest data for the Eurozone economy
has been encouraging. Sentiment is
heading up, consumer confidence is
strengthening – consumer willingness to make
major purchases reached an eight year high in
January – unemployment is edging down and
growth in output is accelerating.
Yet the Eurozone still has growth constraints
including a somewhat restrictive fiscal policy,
high public and private debt levels, as well as
the geopolitical tensions of the Russia/Ukraine
conflict. Inabid toboost the region, theEuropean
Central Bank (ECB) announced a quantitative
easing (QE) programme that will help to ease
credit conditions, by buying € 60 billion (US$
68billion) of public andprivate assets permonth
fromMarch2015 to September 2016.
Greece remains a further hindrance to
growth. Results of the Greek election will
make negotiations with international creditors
extremely difficult. Should Greece default, the
ECB could stop providing liquidity support to
Greekbanks, increasing theprobabilityof aGreek
exit from the Eurozone. However, the European
StabilityMechanism, progress onbanking union,
fiscal consolidation andECB action suggest that a
Greek exit is less of a threat to the Eurozone than
was the case a few years ago.
Overall, theoutlook for the region is better than
previous years and previous forecasts. Lower oil
prices, a weaker Euro, and the QE programme
mean IHSGlobal Insight’s forecast for Eurozone
growth has improved from a +0.8% increase in
real GDP in 2014, to +1.5% in 2015 and +1.8%
in2016.
The outlook for Western Europe construction
is similar to that for its economy – continuing
improvement, but with anaemic growth. Real
construction spending expanded +1.4% in 2014,
after years of contraction, and IHSGlobal Insight
expects+2.2%growth thisyearwith improvement
to+2.5% in2016.
Non-residentialstructures isthestrongestgrowth
segment,withofficeandcommercial construction
the leading components, as job gains and rising
consumer confidence create demand for office,
retail andmeals/lodging space. A significant share
of this spending will be on renovation activity.
There will be new construction activity as well,
but the larger share of that will come in the later
years of the forecast.
Industrial construction spending will lag
other structure types, but will still offer the
best potential seen for a decade. The economic
recovery will benefit manufacturing in general,
and automotive in particular, because the halving
of oil prices has lowered vehicle operating costs
and increasedpurchasing power.
In thepost-crisisyears, the issuewith investment
in this type of construction has been uncertainty,
but IHS Global Insight is cautiously optimistic
that capital spendingwill increase from the second
half of 2015. Indeed, the strongest segment of
industrial constructionwill be facilities producing
transportation equipment.
The weak Euro also benefits Eurozone
manufacturers,asothercountries increase imports.
The primarybeneficiarywill beGermany, but the
industrial construction outlook is also strong for
the UK, Ireland, Turkey and northern Europe,
especiallyFinland.
Infrastructure spending is also providing
impetus, as theneed forfiscal austeritydiminishes
and countries catch up on deferred projects.
Turkey andNorway lead growth in this segment,
followed by Germany and the UK. Spain,
Portugal andGreeceoffermeagregrowth, but this
represents progress from double digit declines.
The strongest turnaround belongs to Ireland,
whose infrastructure construction contracted
nearly -10% over the past five years, but which
will see growth at about the regional average over
the next five.
Over thenext year, residential growthwill be led
by theUK and Sweden (+5.6% each) andTurkey
(+5.5%). Ireland (+4.2%) andGermany (+4.0%)
round out the leaders.
Ireland’s recovery is something of a base effect,
havinghadoneof thehardesthithousingmarkets,
while the UK and Germany will benefit from
strong consumer confidence and income gains.
Turkey has the most attractive demographic
profile of the regional economies, with solid
population growth and improving incomes.
Residential overhang remains in Spain, and fiscal
policy and a lack of consumer confidence remain
drags on residential construction in Greece and
Italy. All three will continue to contract in the
near term, and Norway’s residential spending is
also set to shrink for the second consecutive year.
North-Southdivide
The differential between a moderately strong
Northern Europe and a weaker Southern Europe
marketpersistswith this forecast. Scandinaviawill
enjoy moderate growth in the +1.5% to +2.5%
range,withSweden at thehigh end andDenmark
at the lower. Austria is poised for +1.5% growth,
while Switzerland and the Netherlands realise
total construction increases near +2.0%.
Switzerlandmayhavesomestruggleson thenon-
Quantitative Easing and the fall in oil priceswill boost European construction output this year as
a broad recovery takes hold. However, growthwill remainweak compared to other regions of
theworld.
Scott Hazelton
reports.
Forecasts by sector for Europe
3%
2%
1%
0%
2014
Non-residential
Residential
2015
2016
2017
2018
Infrastructure
