First publishedin Aggregates Business Europe
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European cement markets are in good health despite a UK slowdown and Brexit. Graham Anderson reports.
European cement markets are growing faster than expected with total consumption expected to rise by just under 10% in the three years to 2020, to an annual total of 166 million tonnes.
The increasingly optimistic forecasts are contained in the latest construction industry research from Euroconstruct, an organisation that brings together construction market consultants and economists from 19 European countries.
The reason for the upgrade is the continuing confidence in the strength of the European economy, leading to increasing tax revenues and greater investment.
In June 2017, Euroconstruct predicted that by 2019 annual European cement consumption would stand at 156 million tonnes. Now, it is forecasting a 2019 total of 163 million tonnes, with a further 3 million tonne increase in 2020.
Details were presented at Euroconstruct’s latest conference in Helsinki, Finland, on 7-8 June 2018.
“European construction is growing well on the back of low interest rates, good economic growth and pent-up demand,” said Markku Riihimäki, CEO of Finnish construction forecasters, Forecon.
“This means that tax revenues are predicted to increase allowing for increased investment in public construction, transport networks and other infrastructure.”
He added that other factors boosting construction are urbanisation, immigration and the continent’s ageing population which is boosting the specialist flats and sheltered housing sectors.
The three biggest cement markets remain Germany, Italy and France, but in percentage terms the strongest growth comes from Euroconstruct’s four members from Eastern Europe.
Taken together, the market in the ‘Eastern Europe Four’ – Czech Republic, Hungary, Poland and Slovakia - is only roughly the same size as Germany, but is predicted to grow by over 16% between 2017 and 2020.
The biggest rise over the period is predicted to be in Hungary, at 25%, but it is one of the smaller markets with cement consumption in 2017 at 2.8 million tonnes.
In Western Europe, cement consumption growth is slower but stable, at just over 8% between 2017 and 2020, but the figures mask some notable performances, with a strong recovery predicted in Ireland and Portugal, both countries that suffered badly in the 2008 crash.
One of the few clouds on the horizon is the performance of the UK, where growth will be little more than flat this year as a result of the slowdown in the London housing market and fears over Brexit, with cement consumption forecasts mirroring concerns about the country’s construction economy.
In the four years to the end of 2017, UK cement consumption rose 23% to 13 million tonnes, but between 2018 and the end of 2020, demand is predicted to slow sharply – rising barely 4% in three years.
Europe’s construction output as a whole is predicted to grow by a steady 6% on the next three years by the end of 2020 in real terms – below the 3.9% rise posted in 2017, but a number that has eased the fears of those economists worried that the industry might be heading for another boom and bust.
Within those numbers, Markku Riihimäki said that the forecasters were seeing a shift from housing towards civil engineering, a change driven by Europe’s strong economic performance which is increasing the funds available for public projects such as road construction.
He told Aggregates Business Europe: “One reason for this change in the market is that civil engineering budgets – and especially road building and maintenance – are easy to cut when public finances are under pressure.
“That is what happened in many countries after the 2008 crash, and that means that a backlog has built up that various authorities are beginning to address.”
Because of Brexit, the UK market is the focus of much attention as economists and politicians watch the ongoing debates and discuss the likely impact, not just on the UK itself but on the rest of Europe – the UK is, after all, one of Europe’s biggest economies.
Euroconstruct says that growth in UK construction output will almost come to a standstill this year. It will pick up slightly in 2019 and 2020 but will still perform worse than at any time in the previous four years, and is beginning to lag significantly behind other major European countries.
But the prospects for the UK would be even worse but for the strength of the civil engineering sector and the residential market outside London. Both are expected to offset sharp declines in the office and commercial building markets.
UK civil engineering is predicted to grow by an average of almost 4.4% a year between now and the end of 2020 at 2017 prices, with the forecasters saying that new projects such as the £4.2 billion Thames Tideway wastewater scheme in London, HS2 and the Hinkley Point nuclear power station are more than compensating for the completion of Crossrail and Thameslink railway projects.
Prospects for the new residential market are almost as upbeat with an average yearly real-terms growth rate of 3.1% – although there is little sign of the political support for a significant increase in social housing affecting output in the near future.
In contrast, office construction is seen as a sector that is especially vulnerable to Brexit uncertainties, with output predicted to fall by 10% and a further 14% in 2019, with the continuing squeeze on public capital spending – apart from infrastructure - also causing sharp falls in school and hospital building.
Professor Noble Francis, one of the UK’s leading construction commentators and analysts, agreed with the overall picture of the UK market outlined by Euroconstruct.
“It’s a complex UK construction market at the moment. Some of it Brexit-affected and some not,” said Professor Francis, who is the economics director at the Construction Products Association and visiting professor at the University of Westminster.
“Brexit has clearly affected some key sectors of the UK construction industry. The largest Brexit impacts on construction have tended to be in sectors that are highly reliant on high upfront investment for a long-term rate of return, particularly from foreign investors.
“The sectors most affected by this are the prime residential market and the commercial offices market in London. Both are likely to fall double-digit this year. It also impacts on industrial factories construction, which is dependent on manufacturing investment.”
He added: “Manufacturing is also high upfront investment for a long-term rate of return and until there is a degree of certainty about the deal after the implementation period runs out on 31 December 2020, we are unlikely to see growth in factories construction.”
But he stressed that the picture is not all doom and gloom. House building, outside of London, still appears to be growing as it is being sustained by Help to Buy in spite of a slowdown in the general London housing market.
Private housing repair, maintenance and improvements are currently being sustained by improvements activity from older, wealthier demographics that have housing and pension wealth and have been unhindered by falls in real wages over the past year.
And warehouse construction is expected to grow strongly as the continuing shift to online shopping boosts the demand for additional warehouse floor space, although this is at the expense of retail construction, which continues to fall.
However, there is little sign of a significant upturn in the fortunes of UK social housing, despite recent political statements. According to official data, the number of units built for social or affordable rents is falling sharply and almost half of the housing association starts were for sale, which forecasters say is a further sign of their growing commercialisation.