European Construction Heading for Its Biggest Slump in 25 Years

The European construction industry, which accounts for 12 percent of the region’s economy, will have its biggest slump in 25 years in 2009 as house building declines in western Europe, according to Davy Stockbrokers.

European building work will shrink 2.5 percent this year and 4.3 percent next year, Dublin-based Davy analysts Barry Dixon and Flor O’Donoghue said in a note today, citing forecasts from the research group Euroconstruct.

Homebuilding in western Europe will decrease by 14.3 percent this year and 13.8 percent next year as the seizure in credit markets chokes off finance for people wanting to buy new homes, Davy cited Euroconstruct as saying. In contrast, residential repair, maintenance and improvement work is forecast to hold up “relatively well” and infrastructure will remain the best end-market, Davy said. In June, Euroconstruct had predicted an overall construction decline of 0.3 percent this year and an increase of 0.2 percent for 2009.

“The clear message is that expectations for construction output have been significantly reduced across the continent,” Dixon and O’Donoghue said in their note. “The revised forecasts are clearly consistent with recent economic evidence of a sharp slowdown in most European countries.”

The worst-performing individual markets next year will be Spain and Ireland, which will each see construction output contract by more than 16 percent, followed by Finland, which will have a drop of 10 percent. Germany, France and the U.K., which together make up half of the region’s building activity, will also all have declines.

Euroconstruct is forecasting that the drop in European building work next year will exceed the 2.5 percent decline of 1993, Davy said.

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