Construction sector recovery gathering speed

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ABN AMRO expects building output to increase by 3 per cent in 2014 and 2 per cent in 2015. Between January and May this year, building output was up by 3.3 per cent year on year, boosted by factors including mild winter weather. Construction sector indicators, meanwhile, are rising.

The indicators we refer to are order portfolios, building permits granted and the construction confidence indicator, which is based on a survey of entrepreneurs in this sector. Construction order portfolios bottomed out in March 2013 and have been steadily expanding since then. Building permits granted were at their lowest in December 2013, and have also climbed out of the trough in recent months. The construction confidence indicator has been on the rise since late 2012. In ABN AMRO’s view, all these indicators suggest that the recovery of the construction sector is gathering momentum.

All construction segments sharing in recovery

The upward revision of the building output prognosis for 2014 extends to every segment of the industry. From housing to non-residential and infrastructure, ABN AMRO is projecting positive growth figures in 2014. Housing production is expected to increase by 1.25%. Infrastructure has benefited most from this year’s mild winter weather, with growth of 2.5% likely in 2014. The highest growth forecast, 4.75%, relates to the non-residential segment, where accelerated recovery in construction combines with a pickup in capital expenditure by the corporate sector.

Recovery feeding through to related sectors

Related businesses, too, such as timber and building materials producers, engineering companies, installation firmsĀ  and architects stand to benefit from construction sector recovery. Architects, as early-cycle players, have been reporting strong growth. From 2013Q3 through 2014Q1, the aggregate contract value of new orders jumped 29% compared to the year-earlier figure, and this increase is now reflected in data from architects. Where these firms still reported a contraction of turnover by 13 per cent in 2014, turnover rose by 4.3 per cent in the first quarter of 2014. For full 2014, growth of 3 per cent is projected, accelerating to 4 per cent in 2015. With the construction sector on the upswing, installation firms are also seeing their business pick up, following a decline in turnover of 3.1 per cent in 2013. For these firms, the upward revision of industrial output forecasts spells further good news, as they get around 20 per cent of their orders from industrial customers. Their turnover is projected to increase by 2.5 per cent in 2014, and 3 per cent in 2015. Timber and building materials producers, too, should see their sales increase by 1.5% in 2014 and 2.5% in 2015, following a steep decline in 2013 ( 6,3%).


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