Mixed Fortune for European Construction – Mace

Mace has published its Tender Cost Update for Western Europe, reporting that while Europe's slow recovery continues with growth of 1.5% forecast for 2015, the building construction market is expected to remain flat.

The significant differences in economic performance between member countries continues as the latest figures from Eurostat show that annual growth in the region as a whole was just 1.4% in Q1, a marginal improvement on the previous quarters. The European Commission is now forecasting growth of 1.5% this year, rising to 1.9% in 2016, with the slight upward revision due to the boost that is expected from the combination of a depreciating Euro, low oil prices and quantitative easing.

The resurgence of concerns over Greek debt has led to further falls in the Euro, and although a plan has been agreed to overcome the short term difficulties, this will only serve to increase the size of these unsustainable debts. The country is already in arrears to the IMF, and the instability of both the government and the banks leaves significant risks which will remain for the long term.

In the UK, the prospect of five years of political stability following the general election and economic growth well established means that the outlook for the construction industry is good, with inflation under control and interest rates likely to remain at low levels for some time to come.

However across the rest of Europe, forecasts are mixed. In France, for example, government debt has become a concern and total gross debt has now reached 98% of GDP. As the Maastricht debt criterion for EU membership was set at 60%, concerns have been expressed by other member states, particularly as the level of debt shows every sign of continuing to rise. Mace therefore does not expect to see any tender price inflation until at least 2016, and this is likey to remain subdued for the foreseeable future.

By contrast in Germany, the Bundesbank index of construction price inflation shows a small annual increase in prices, Mace forecasts that tender prices will remain flat for the rest of this year. If the economy continues to recover and general levels of inflation start to rise, tender prices are expected to rise over the next two years but the rate of increase is likely to remain around the 2% level.

Poland continues to see robust growth with GDP continuing to rise while unemployment falls and with spare capacity in the industry, Mace expect tender prices to remain flat this year but with price increases up to 2% over the following two years.

In Spain after an initial burst of growth from a very low base, construction output is expected to continue to grow in the longer term but at a relatively gradual pace. The spare capacity in the economy will mean that prices will remain subdued for some time to come and Mace forcasts tender prices to remain flat this year with small increases below 2% over the next two years. By contrast in Portugal, although the decline of the construction sector has slowed, tender prices are forecast to remain very subdued as any increase in demand is unlikely to be broad based and significant spare capacity will remain for the foreseeable future.

Nick Eliot, Director at Mace Cost Consultancy, said: "Construction activity is subdued across the major economies of mainland Europe and we are seeing little or no increases in tender prices generally. Although growth is forecast to pick up over the next couple of years, we should not under estimate the financial and political risks that remain from the Greek debt crisis or the Ukraine/Russia situation, when undertaking work on the continent."

Mace's Cost Consultancy business produces a bi-annual Western European Tender Cost Update, offering a snapshot of construction market conditions and movements to help businesses spot and understand trends across the industry and plan accordingly.

To read the full report, please click here.