THE HEAVY construction sector is set to slip into recession this year for the first time since the early 1990s.
NCE's exclusive analysis of three main industry forecasts reveals a predicted 1% drop in heavy construction output during this year, followed by a 0.2% increase in 2001. This average annual decline of -0.4% in output during 2000/2001 compares to last summer's predictions that work in this sector would grow by 0.4% a year over the same period.
The average annual growth rate for heavy construction during the four years from 1996 to 1999 was 4.5%.
However, the news is not as bad as it appears. One of the reasons for the fall in heavy construction output forecast for 2000 is that workload growth in 1999, at 5.9%, was nearly six times greater than previously expected. The boom in the commercial sector got a second wind as the UK economy continued to improve and the hospital construction and lottery project programmes led a recovery in public sector building.
Second, even the most pessimistic predictions made by Construction Forecasting & Research, the Construction Products Association and Hewes & Associates do not foresee the same collapse that followed the boom of the late 1980s.
The recovery in civil engineering continues to be delayed. An increase in output - the first since 1996 - is not expected until 2001. However, the forecast 4% increase in output will make infrastructure the most active heavy construction sector that year and, probably, the next.
Work in the water sector has been adversely affected by the completion of schemes driven by European environmental regulations and by the decision of the sector's regulator, Ofwat, to cut water charges. Non-critical work is expected to be deferred until well into next year.
The decline in road spending is finally expected to end this year, with increased maintenance expenditure helping to lift output next year.
Not surprisingly, the greatest growth is expected in the rail sector with the second section of the Channel Tunnel Rail Link and upgrading of the West Coast Main Line providing the impetus.
Commercial building is the most important element of the heavy construction sector, accounting for nearly half of its workload. The way in which commercial building work reacts to a levelling off in demand will largely determine the length and depth of any recession.
Output is predicted to continue to increase this year, although at a much lower rate, as many office, entertainment and lottery funded projects are completed. However, some will still be under way in 2001, resulting in a gentle decline. As a result, 2002 looks like being the crunch year for UK construction.
There is little encouragement for the industrial building sector with the high pound undermining the competitiveness of UK manufacturing and inward investment by overseas companies tailing off. 2002 may bring recovery, although few economists would bet on it.
Public sector building
Although the millennium projects boom is over, the late completion of many schemes and continuing growth in the health and education sectors means public sector building will be a healthy market during the next two years. 2002 could see a post election dip.
During the period 1996-1999 total construction output rose by an average 2% each year. Average annual growth in 2000/2001 will also be 2%. However, that is where the similarity ends.
Growth during the late 1990s was fuelled by the commercial and industrial new build markets. During 2000/2001 output in these sectors is expected to decline by 0.4% and 14.8% and respectively.
For the next two years the engines of growth will be housing, repair and maintenance and public sector work.
Housing output is predicted to grow by an average of 4.7% during 2000/2001, non-housing output will increase by an average 0.2%. Repair and maintenance will average 3.7%, new work 0.4%. Public sector output will rise by 5.8%, private sector work by 0.5%.