Almost all of Europe’s countries, with the exceptions of Switzerland and Norway, were badly affected by the recession. Here, as part of the ongoing series on cost data, Rider Levett Bucknall partner Ian Sandland provides an overview of current European construction activity highlighting the countries where opportunities for civil engineering works are coming to the fore.
There are signs of recovery and growth in the Czech Republic. GDP rose by 2.3% in 2010 and may reach 2.6% this year.
Despite the impact of government budget cuts on construction, there are several causes for optimism: some 100,000 m2 of office space is to be finished in Prague in 2011 and there will need to be investment in the transport sector energy and utilities in the medium term.
The Finnish economy has been successfully recovering and GDP rose by 2.6% in 2010 and a 3% increase is forecast for 2011. As a result, the Finnish construction industry was one of the strongest in Europe in 2010, consistently growing at 10%-plus throughout the year. Reflecting the strong market, building costs were 2.6% higher in December 2010 than in December 2009.
Labour costs in construction rose by 0.7% while the prices of materials increased by 3.9%.
After a 5% decline in construction in 2009, there was some improvement in 2010 but the sector still fell by around 3%. Dependent on funding, construction may grow by 4% to 5% during 2011.
There are a number of significant infrastructure projects planned, including high speed rail, regional rail and power plants, although it is notable that there is an over-supply of commercial real estate in most major cities and sub-sectors in France.
Georgia enjoyed a healthy 5% economic growth in 2010, although a slowing down in commodity price rises seems likely for 2011. There are a number of significant planned investments, including a hydropower plant, thereby reducing dependence on oil and gas imports.
Georgia is helped by the fact that the World Bank has recognised it as one of the world’s fastest-reforming economies; in 2010 it ranked Georgia as the world’s 11th easiest place to do business, up from 115th in 2005.
The German economy grew by 3.6% in 2010, its fastest pace since reunification, and it has raised its growth forecast for 2011 from 1.8% to 2.3%.
Germany is the world’s second largest exporter after China and it was buoyed last year by a boost in demand for its products as the global economy recovered. Public sector construction is expected to continue to fall in 2011 although residential construction will continue to be strong 2011.
“Norway has been affected by the economic recession to a relatively small degree, mainly due to the substantial revenues from the oil and gas exploration”
It is anticipated that the Hungarian construction industry will show limited growth in 2011 and more dynamic development in 2012. Projects include industrial developments from biofuel producers, major shopping centres and leisure facilities. No major motorway construction is foreseen, but there is planned investment in the national railway and river dams.
Kazakhstan’s economy grew by 6.5% in 2010 and forecasts for 2011 indicate a further growth in GDP of 4% to 5%. With the opening of the Central Asia-China gas pipeline and new oil pipelines linking the West Kazakhstan oilfields to China, Kazakhstan’s eastern neighbour remains the primary - and increasingly important - market for its raw materials.
Construction of the Western Europe-Western China highway and the planned rail link from Zhetigen near Almaty to the Chinese border will allow Kazakhstan to further increase its exports. The launch of the first phase of Kashagan - the world’s largest offshore oil and gas project - is expected in either late 2012 or early 2013.
Norway has been affected by the economic recession to a relatively small degree, mainly due to the substantial revenues from the oil and gas exploration. However, production has now peaked and GDP dropped by 1.6% in the third quarter of 2010, compared to the same period for 2009. For 2011, the housing market, offices and retail are enjoying an increase in demand. Government-initiated projects, such as planning and construction of hospitals, schools, universities and cultural buildings have been important for the construction industry as a whole. There is also a positive outlook for public infrastructure projects, railways, roads and airports.
The construction market in Poland is one of the strongest in Europe, with a forecast growth of 10%-plus in 2011 in terms of construction output.
In terms of key sectors, the largest construction companies see road construction as the most attractive sector in the next two years, followed by power construction (including facilities for the power, gas and fuel industries), railway construction and residential construction.
Civil engineering construction will continue to be the main driver of growth in the Polish construction industry in the upcoming years, although with the vast majority being public projects, some may be delayed.
Romania remains one of the most promising construction markets in Europe and 2011 is expected to lead to a more stable environment. The area of residential and commercial properties is relatively modest in comparison with those of other European Union member states, and the country’s infrastructure is underdeveloped and in need of sizeable investment. Substantial funds from the EU are available for this purpose, but the Romanian government has to learn how to use them effectively. This process took several years in the countries which entered the EU in 2004, and a similar pace of development should be expected in Romania.
The Russian construction market continued to shrink in the first half of 2010 and showed slight growth in the second half to close the year with an overall contraction of under 1%.
Russia is preparing to host several major international events that continue to demand large amounts of public funding and private investment to provide the infrastructure and amenities, including the APEC Summit in Vladivostok in 2012, the Sochi 2014 Winter Olympic Games and the 2018 FIFA Football World Cup.
Construction of Russia’s answer to Silicon Valley - Skolkovo - is well under way and likely to lead to spin-offs in the construction of additional research and manufacturing facilities elsewhere in the country as it continues to attract global corporations to invest in Russia.
Driven primarily by net exports, the Serbian economy recovered in 2010 to record a 1.5% growth and a growth of 3% in GDP is expected in 2011.
The smooth implementation of the IMF programme in Serbia has alleviated external financing concerns and the banking sector remains in a sound condition. In addition, the European Investment Bank is lending Serbia €325M (£286M) to build new roads and a bridge as well as partially upgrading its energy infrastructure.
The Turkish economy was one of the best performing in Europe in 2010, with a GDP increase of over 8% and a forecast of 5% plus for 2011.
Turkish contractors are involved in numerous international projects and have both the Russian and Qatari World Cups as targets, as well as expansion in Africa. The infrastructure sector accounts for around 50% of the total construction market, led by transport but with developments in utilities and energy also, while the residential construction sector also has good prospects.
The Ukrainian economy has recovered well from the 15% contraction in 2009. GDP grew by over 4% in 2010 and similar outcomes are expected for both 2011 and 2012, although inflation is running at 10%.In this it will be helped by tax reductions and support from the IMF programme, which will guarantee new foreign loans and new investment into Ukraine.
The co-hosting of the Euro-2012 football championship (with Poland) is a major element in the construction industry, with the government allocating 10% of the entire Ukrainian construction budget in 2010 £1.14bn to building infrastructure facilities and a similar figure is expected in 2011.
On the European mainland, there is the common theme of significant dependence on public sector funding and infrastructure projects.
Throughout Europe, governments have committed large sums of money to stimulating construction, but these monies are waning and all economies have to look to private investment to move forward.
The austerity measures being put in place in Greece, Italy, Spain and Portugal, in particular, will have a greater impact on the European economy in the coming year as further cuts are implemented.
Elsewhere, we are seeing some rising stars in the newcomers to Europe such as Hungary, Romania, the former Eastern Bloc countries and Turkey, who are beginning to perform.
- Lance Taylor is chief executive of Rider Levett Bucknell