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Market Analysis

European Overview

Strong growth in Eastern Europe and an unexpected boom in housing have led economists to upgrade their short-term forecasts for the European construction sector at their latest biannual conference in Amsterdam.

Economists and researchers from 19 European countries meet twice a year under the banner of Euroconstruct*. The organisation brings together their predictions as the basis for a unique set of forecasts and analyses for the construction industry.

The Amsterdam conference predicted real-terms growth of 2.6% in 2006, up from the 1.5% it forecast last November.

The reason for change was the sudden improvement in the new housing market. Six months ago, the experts were forecasting a 0.3% drop in the value of housing output, but now they are suggesting that it will rise by 3.5%.

At the same time, the civil engineering market in the East will expand by a further 11.3%.

That civil engineering growth means the East will remain strong through 2007 and 2008, although the West will falter as the much-predicted housing slowdown begin to bite.

Taco van Hoek, director of the Economisch Instituut voor de Bouwnijverheid (EIB), the conference organiser, emphasised the strong links between overall economic performance and the construction sector and said the signs were positive.

'There are clear signs of economic recovery in the figures for 2006, which should continue at a reasonable level in 2007 and 2008.

'What is more, the International Monetary Fund and the European Union are saying the same thing - so there is consensus.'

There is also price stability, no great inflationary pressures and falling unemployment. However, van Hock did urge caution. Rising interest rates, a sharp fall in the dollar or another big jump in oil prices could all cause problems.

'Indeed, given the favourable outlook, we might ask why the economic recovery is not much stronger'.

Annual Change in European Construction (% Real Terms)