Construction industry slowdown starting to spread
CONSTRUCTION output is expected to shrink during both 2008 and 2009 according to the latest joint Trade Survey Report from the Construction Products Association and the Construction Confederation, as the economic slowdown coupled with the rising prices of energy and raw materials continues to bite.
After 15 years of almost unbroken growth until the downturn at the beginning of this year, the second quarter of 2008 has deteriorated still further and 2007’s GDP growth of 3.1% looks set to halve during 2008. Problems with credit availability have already had a considerable impact on construction this year and the troubles within housing are now spreading into other sectors.
According to the report, civil engineering workloads have fallen sharply over the course of the last quarter, following strong growth during 2007, and 68% of manufacturers are reporting that poor demand is expected to limit output growth over the next 12 months.
On the manufacturing side, the report highlights a clear distinction between heavy- and light-side operations. The heavy side, generally used in the early part of construction, is being significantly affected by the economic slowdown, while light-side manufacturers have so far remained relatively immune to the situation.
Heavy-side manufacturers have now experienced significant falls in sales volumes for three consecutive quarters, while 42% of light-side firms have reported growth in sales and 38% of firms have seen an increase of more than 5% in sales volumes.
Commenting on the survey, Noble Francis, economics policy development director at the Construction Products Association, said the further reduction this quarter, although predictable, was of great concern for many parts of the industry.
‘Increased energy costs and high demand for materials from countries such as China and India has led to consistent rises in material prices, which in turn is leading to a reduction in profit margins. Output is definitely falling in the private sector and, therefore, it is essential that government spending is not significantly cut.’
Stephen Ratcliffe, chief executive of the Construction Confederation, added: ‘Clearly the chill wind that has ripped into house building is beginning to blow through other sectors in the industry and contractors are reporting falls in output. Maintenance of the public sector investment programme is increasingly important for the well-being of construction,’ he said.