The Spanish and UK economies suffered severe downturns in 2020 amid the disruption caused by Covid-19 lockdown measures and other stringent restrictions on activity. While both economies expanded slightly on a quarterly basis in Q4 2020, both were deeply scarred by the virus outbreak, with real GDP contracting by 9.1% in Spain and 9.9% in the UK in 2020. The positive Q4 quarterly real GDP data for both the UK and Spain provides a foundation going into the 2021. However, while their economies have followed a similar path, the Q4 construction data shows a diverging path, with the Spanish construction industry contracting by 8.1% and the UK construction industry growing by 4.6%. While both industries are expected to recover in 2021, output will remain significantly below 2019 levels as a result of the impact of Covid-19 and the weaker investment environment following the devasting impact of the economic downturn on corporate earnings in 2020.
The Spanish construction industry recorded a contraction of 18.2% in Q4 2020 on a yearly basis while on a quarterly basis output was down by 8.1%. Several sectors in the industry were adversely affected, the fall in tourism flows saw the brunt of the economic damage falling on the traditionally strong commercial sector. Despite the turbulent year the industry faced in 2020, GlobalData expects the Spanish construction industry to grow by 7.4% in 2021. Growth in the industry will be supported by significant government spending on infrastructure, residential and renewable energy projects. Downside risks remain however, the slow vaccine rollout across the EU may push back the timeline for the easing of restrictions. Although the baseline scenario remains positive, with fiscal and monetary support driving the recovery in 2021.
Meanwhile, the UK construction industry also faced a difficult year, UK construction output fell steeply in 2020, recording a contraction of 12.5%. The sharp fall in output was the second-largest fall on record and the sharpest fall since the financial crisis in 2009. The lockdown measures which continue to remain in place coupled with Brexit difficulties will mean the industry will face a tough start to the year. However, the outlook for the industry in 2021 is positive, with the UK’s successful vaccine rollout programme likely to lead to a lifting of lockdown restriction, which will provide a boost to confidence in the commercial and hospitality construction sectors. The government’s infrastructure spending plans and accommodative monetary policy will also provide a boost for the infrastructure and residential construction sectors this year. Despite the sharp fall in output last year, the industry is expected to recover in 2021, with GlobalData forecasting a 6.8% increase in growth this year. There are downside risks to the forecast including new strains of the virus which may mean further lockdown measures being imposed later in the year. However, the baseline outlook for the industry and the wider UK economy remains positive for 2021.