The construction industry showed the first signs of recovery at the end of 2013. This year-end upturn could not, however, prevent a drop in turnover and production for the year as a whole. Turnover was down 4.4 per cent in 2013 and production fell by 3.7 per cent.
As construction companies had to compete with each other for a limited number of projects, operating margins came under pressure. ABN AMRO says the year-end rise in production and turnover continued into the first quarter of 2014, when an increase of 8.8 per cent was recorded compared with the same period last year. According to ABN AMRO, the strong growth in the construction industry in January and February may be attributed mainly to the mild winter.
Construction industry to see real recovery in 2014
Leading indicators show that, in addition to the mild winter, the construction industry is poised for fundamental growth. Based on the moving average for production and turnover, the lowest point was reached in September 2013. The downturn in building production seems to have come to a standstill. ABN AMRO points out, however, that the recovery is fragile and that the level reached now is still a far cry from that before the crisis. The order portfolio for the entire construction industry has risen slightly to 5.6 months in the second quarter so far compared with a stable order portfolio of 5.3 months in the previous three quarters. According to ABN AMRO, the number of permits issued, the value of orders received and the costs of new assignments for architects seem to indicate that a recovery is on its way.
Recovery of residential construction important for long-term growth
As renovation work has been less adversely affected by the crisis, ABN AMRO expects that this sector will recover more quickly than the rest. Business in the new-build sector will take longer to pick up. We are seeing that new-build public utility projects are now recovering more swiftly than new-build homes. ABN AMRO reports that the number of assignments for public utility buildings is more stable than residential projects. In short, renovation work and new public utility projects account for most of the present recovery in the construction industry. Activity in new-build homes is expected to pick up in the years ahead, also in response to the growing number of households in need of homes. That said, ABN AMRO expects that the lagging social housing construction will impact new-build construction, predicting that no more than 100,000 new homes will be built between now and 2018 compared with an estimate of 150,000 two years ago. ABN AMRO underlines that recovery of residential construction – in particular new-build – is important for long-term growth.