In line with expectations,
construction output in the EU declined sharply in the first quarter of 2010 due to harsh winter conditions halting work at most projects. In addition to weather-related disruptions, the
construction sector has also been affected by the ongoing weakness in
construction investment in the aftermath of the global financial crisis and the recession that followed in its trail. Order books have been drying up gradually as both private households and entrepreneurs have been shying away from new investments in housing, commercial or industrial property due to financing restraints and still high uncertainty levels surrounding the economic outlook, according to the third quarter report of the ‘Economic and Steel Market Outlook 2010-2011', released by the European Confederation of Iron and Steel Industries (EUROFER)..
Preliminary data for the second quarter confirm that in most countries there has been a rebound in activity levels in the
construction sector as work was restarted on most projects. However, in a year-on-year comparison, the downward trend in output continued with total
production falling by 2.2 percent. With a forward view to the remainder of 2010 and 2011, the outlook has weakened further, according to EUROFER. The main reason is the potentially severe direct and indirect impact of the austerity programs announced since April by many EU governments.
While it was hoped that increased government spending would support activity in public building and particularly in the civil engineering sector, this positive effect could be lower than previously anticipated. Stringent budget cuts will inevitably lead to reductions in public
construction investment across the EU. Indirect effects should not be overlooked either: more difficult access to finance due to increased risk aversion by the financial sector in the light of the deteriorated financial health of several EU countries, a rising tax burden and an overall weakening in confidence.
Despite increased uncertainties, it is still expected that the EU
construction downturn will bottom out this year and that 2011 should see - depending on the country - a low level stabilization or minor improvement. At the country level, the outlook for the central European countries is much more benign thanks to EU funds securing the continuation of large infrastructural projects. On balance,
construction output is forecast to fall 2.8 percent in 2010 before expanding again by 2.6 percent in 2011.