Economic Information
January 2010
The conditions for construction remain extremely challenging despite data for the fourth quarter of 2009 expected to show that the economy had begun its long road to recovery. Following on from 2009's sharpest fall in construction on record, the industry is expected to contract a further 3 per cent in 2010 prior to a return to growth in 2011 with the result that the construction industry will have suffered a deeper and more prolonged recession than the economy as a whole.
Currently, industry concerns still primarily remain in private sector construction, which is suffering from sharp falls in the commercial and industrial sectors combined with a challenging private housing sector.
The commercial sector is estimated to have fallen 26 per cent in 2009 alone, the sharpest fall on record and it is expected to fall a further 15 per cent due to a lack of orders for new offices and retail properties. Likewise, due to a collapse in orders for new factories and warehouses, industrial construction work fell by an estimated 48 per cent over the last two years and is expected to fall a further 2 per cent during 2010.
Despite significant rises over the last six months, private housing remains at historically low levels. Even with double-digit growth over the forecast period, continuing the growth seen in the second half of last year, private housing starts are only anticipated to be 92,000 in 2010, half the figure seen in 2007. Even in 2013, starts are expected to be 25 per cent lower than in 2007. During the recession there are still some areas that are currently enjoying growth and expected to grow further over the next few years.
The infrastructure sector is set to benefit from considerable growth between 2008 and 2013, growing more than 20 per cent, buoyed by work on roads in the near term, work on the nuclear programme towards the end of the forecast period and work in the rail sub-sector throughout.
Yet with an Election due in the first half of 2010, attention must turn to public sector construction. One reason that the construction industry as a whole has not suffered even greater falls in output has been the increased spending on construction from government. Public spending in areas such as housing, education and transport infrastructure now accounts for 40 per cent of construction work and this has helped to limit the effects of sharp falls in the private sector. Expenditure by the public sector on construction is expected to remain high in 2010.
However, in December 2009's Pre-budget Report, the Chancellor confirmed that, firstly, there would be no further fiscal stimulus for construction and, secondly, annual public sector net investment would fall by over 50 per cent over the next four years post-election. With economic and construction recovery already expected to be slow and protracted, halving public construction spending could extend the industry's recession well beyond the anticipated three years.
Key Points include:
• Construction output to fall 3 per cent in 2010 before returning to marginal growth between 2011 and 2013
• With trend growth each year after 2013, construction would still only return to 2007 levels in 2021
• No private sector construction recovery until 2011 but sharp fall in public sector construction work from 2011
• Private housing starts only 92,000 in 2010
• Infrastructure output set to rise 22 per cent in the next four years
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