Construction output has further to fall

Despite falling more than 12% in 2009, output in the construction industry is likely to fall a further 3% this year, according to the latest construction forecasts from the Construction Products Association.
The Association believes that any recovery will not be until 2011 and even then, it will be very slow with annual growth of less than 1% in each of the three years from 2011-2013.

CPA chief executive Michael Ankers said; ‘Construction has been one of the sectors of the economy worst hit by the economic downturn, and whilst it is widely believed that the wider economy is now out of recession, the construction industry is going to have to wait for at least another 12 months.

Private housing starts in Great Britain fell by 50% in the first half of 2009 compared to a year previously. The third quarter of 2009 saw a turnaround in starts, which rose 24% compared to a year earlier and as a whole 80,000

starts are estimated for 2009. The Association forecasts that private housing starts will continue to rise with annual double-digit growth from a historically low level.

Even with 15% growth this year, the anticipated 92,000 private starts in Great Britain is historically low and in 2013, even after four consecutive years of double-digit growth, starts are anticipated to be 25% lower than pre-recession levels.

Completions and output both lag starts and are expected to grow significantly in the second half of

2010. Between peak private housing output just four years ago and its low point in 2010, the sector is expected to have lost almost half its value.

Output in the private housing rm&i sector is estimated to have fallen 11% in the sector during 2009 with a further fall of 2% anticipated in 2010 due to poor economic growth, the return of VAT back to 17.5% and increasing unemployment. All three are expected to lead to falls in consumer confidence and spending. Recovery in the sector is anticipated from 2011 with growth of between 4% and 5% annually.

Public housing starts are estimated to have remained at 25,000 in 2009, a similar figure to 2008. With no growth going forward due to anticipated spending cuts from government offset by growth in public housing from the private sector, public housing starts are expected to remain at 25,000 between 2010 and 2013.

Given the slow economic growth anticipated in 2010, private non-housing r&m output is not expected to rise. With

economic recovery underway and moving towards trend in 2011, high street retailers will be looking towards improving the image of their shops once again and attracting customers. This combined with finally

undertaking the r&m currently being delayed should ensure growth in 2011 at a time when commercial new build is still expected to be falling.

Output in the public non-housing sector has risen by an estimated 44% in the last two years alone and

with finance brought forward from 2010/11 to 2009/10 as part of the Government’s fiscal stimulus combined with further work on the Olympics and education programmes, output is expected to rise further

in 2010.

Output in the public non-housing is estimated to have grown 25% in 2009 following a 15% rise in 2008. Workloads are still expected to rise in 2010, by 6%, prior to falls in output. Output is expected to be maintained at historically high level in 2011 despite a 5% fall in output buoyed by work based upon contracts signed in 2009 and 2010.

However, from 2011, the sector can expect to endure double-digit falls in output as the effects of central government spending cuts feed through into construction work and work on the Olympics facilities finishes.

The commercial sector is estimated to have lost £6 billion of work in 2009 alone, a 26% fall. Commercial new orders in the first three quarter of 2009 fell 48% providing little respite for the sector. The Association forecasts that

commercial output will fall another 15%, or £2.5 billion of work, in 2010 and a further 1% In 2011 with no growth in output until 2012, when output is anticipated to rise 4% and a further 8% in 2013. However, output even in 2013 is still anticipated to be 31% lower than in 2008.

Out of all the construction sectors, the industrial sector is expected to endure the harshest percentage falls in output with only a few low value projects in the pipeline. Industrial output in 2008 fell 19% and is estimated to have fallen 36% during 2009 as a result of a 40% fall in new orders during the first three quarters of 2009. Output is expected to fall a further 2% in 2010, which means that peak to trough, output will have fallen 49% prior to any significant growth in the sector during 2011.

2009 was estimated to be the sharpest annual fall in construction on record and despite expectations of a return to economic growth in 2010, construction output is still anticipated to fall 3%. Recovery in the construction industry will clearly be driven by the private sector, given the financial constraints likely to be encountered by the public sector. Yet the low growth rates for construction overall, between 0.4% and 0.5% per year between 2011 and 2013 illustrate the challenging situation that the industry is likely to be in with considerable falls in public sector construction. If government spending is cut even sharper than anticipated then this could prolong the three year long construction

recession for years to come.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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