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Subdued activity in the European construction sector

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World Cement,

The European Cement Association’s (CEMBUREAU) economic quarterly report for 3Q13 revealed subdued activity in the EU construction sector compared to relatively more positive developments in the general industrial environment.

Construction output

In September 2013, European construction output in the EU recorded its fourth consecutive increase on a quarterly basis in 3Q13 (0.3% after 3.1% in 2Q13). The y/y downward trend recorded in previous quarters continued but further eased (by 0.5% following from 2.1% in 2Q13), for a cumulative peak-to-trough fall (since the financial crisis of 2Q08) of 19%.

The breakdown by construction subsectors revealed that residential construction production increased by 0.3% compared to 2Q13 and by 0.5% y/y, for an overall peak-to-trough drop of 23.6%. There has been a corresponding cumulative loss in production for civil engineering of 27.4%, falling by 0.9% in 2Q13 and by 4.9% compared to 3Q12. However, from a short-term perspective, in 3Q13 both subsectors were far above the all-time low that was recorded in 1Q13. Since the start of the financial crisis, the construction recession has initially had more of an impact on private demand from households and to a more limited extent civil engineering works.

Regional breakdown

In Germany and France, construction production proved feeble in 3Q13, after gaining ground in the previous two quarters, despite remaining around the highest levels since 1Q12. The construction production index fell both q/q and y/y in both countries (by 2.7% in 2Q12 and by 0.1% in 3Q12 in Germany and by 0.2% in 2Q12 and 0.9% in 3Q12 in France). In contrast, leading indicators for construction in 3Q13 continued to provide no signs of a real turnaround of the cycle in Italy, where the construction production index remained above the all-time low recorded in 1Q13, but fell by 0.4% in 2Q13 and continued to fall on a yearly basis (by 6.3%).

In Spain, construction production increased on a quarterly basis for the second consecutive quarter, albeit at a lower rate than in Q213 (1% compared to 8.6%), and demonstrated an increase of 5.6% y/y. Even though the latest quarterly figures have shown an upward trend, construction production levels have lost approximately 54 percentage points when using 2006 as a base year, and have been lower compared to industrial production levels for a long time. The cement production index in the EU fell sharply again following on from the recovery that had taken place since 1Q13 and recorded a 4.9% loss compared to 2Q13, equating to a fall of 3.9% compared to the same period a year earlier.

Similar developments can be observed for individual euro area countries, where the recovery of the two previous quarters has not only lost ground but also turned into substantial quarterly declines (4.4% in Germany and 4.9% in France). However, there were very moderate drops in the previous year (0.1% and 0.3%, respectively). In Germany and France the cement production index seems to have stabilised over several quarters and has been fluctuating around acceptable levels. In Italy and Spain, where current cement production levels remain extremely low in historical terms, two opposite very-short-term trends can be observed: in Italy, the cement production index has plummeted by 16.8% quarter-on-year (by 8.6% y/y) to its record low. In Spain, data over the last one-year time-span (since 3Q12) shows some stabilisation, which developed in a growth of 2.8% on 2Q13, despite very low cement production levels in absolute terms.

Modest recovery

Some signs of a modest recovery in construction activity were evident from 3Q13 figures for construction investment in the EU available from national accounts, which anticipate developments in actual construction activity over the next quarters as they incorporate business investment decisions. In 3Q13, construction investment in real terms in the EU remained well above the all-time low reached in 1Q13, but was still very low when placed within longer-term context. Total construction investment went up for the second consecutive quarter (by 0.6%, as in 2Q13). On a yearly basis, however, this figure represented a fall of 2.9%.

Equally, residential investment showed positive quarterly growth and negative yearly growth for the second consecutive quarter, but at moderate rates (0.7% q/q and 0.8% y/y). Despite the seasonal pattern – Q3 being generally a period of rather positive performance for construction investment – construction activity remained subdued due to several adverse economic factors: depressed confidence and uncertainty upon the economic recovery (which primarily impacted private non-residential investment, despite very low interest rates); continued stagnation in civil engineering as a result of cuts in public spending. Data for 3Q13 provided further evidence that since the onset of the economic crisis in 2008, the residential subsector proved weaker than the other construction subsectors, mainly due to its tighter correlation with the housing market collapse in many EU countries.

Read CEMBUREAU’s full economic quarterly report for 3Q13 here.

Adapted from press release by Rosalie Starling

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