On the up Construction recovery begins

COMMENT

BILLJAMIESON | Executive Editor of The Scotsman

The corpse has a pulse!

The latest surveys point to signs of life in the eurozone.

It’s so long since the eurozone economy was wheeled into the operating theatre, tubes protruding from every orifice that we’ve almost forgotten how the patient once looked or indeed the precise nature of the malady.

But we have now arrived at that moment in TV hospital dramas when the whitecoated doctor emerges from the emergency ward and approaches along an echoing corridor. Bleary-eyed relatives cluster at the waiting room door. “How’s the patient, doc?” they whisper. “Will he pull through?”

As the camera closes in on the doctor’s face, we can see him struggling to choose his words with care. “There’s good news (pause). And there’s the bad news. The bad news is that he’s still critical. The good news is, well, good.” Here the expression changes from a frown to a broad beam. “There’s still a pulse!”

That, in euro economy terms, is cause for celebration. China has continued to bound ahead. America has moved decisively along the recovery road. The UK is experiencing an upturn far broader and stronger than most had dared hope a year ago. But recovery in the eurozone could barely be discerned behind the oxygen mask and breathing apparatus.

Now we have firm evidence that there is not just a pulse but that it is growing stronger. For most of last year it was feeble to the point of indistinct. Austerity measures to pull the public finances of member states back into shape and painful bank de-leveraging worked to prolong the eurozone’s comatose state.

But figures released in early March pointed to a quickening pace of growth, much to the relief of policymakers who have been mulling a resort to electric shock treatment – the application of monetary stimulus to stave off the risk of deflation. A sustained fall in prices could smother recovery and induce an alarming slowdown in the pulse.

The good news was twofold. First came a survey from financial information company Markit suggesting that economic growth in the eurozone accelerated to a 32-month high in February, largely on the back of the services sector and strong growth in Germany, Europe’s largest economy.

And in a sign that Europe’s indebted countries may be over the worst, Markit found that Spain is enjoying its best quarter in seven years, while Italy is growing at a near three-year high.

Markit’s composite purchasing managers index — a broad gauge of business sentiment — rose to 53.3 points in February, up from the initial estimate of 52.7 and ahead of January’s 52.9. Anything above 50 indicates growth.

France’s services sector beat expectations, although it remains in decline, coming in at 47.2.

Italy’s services PMI were also strongerthan-expected, with the country’s sector moving into growth, at 52.9 from 49.9 – a three-year high. And further strength was shown in powerhouse Germany too, at 55.9 – the highest reading since June 2011.

Markit’s chief economist Chris Williamson said the survey suggested that the region is on course to grow by 0.4–0.5 per cent in the first quarter – its best performance for three years.

In the final quarter of 2013, the eurozone grew by a quarterly 0.3 per cent, which equates to an annualised rate of around 1.2 per cent.

Figures released in early March pointed to a quickening pace of growth, much to the relief of policymakers who have been mulling a resort to electric shock treatment – the application of monetary stimulus – to stave off the risk of deflation.

Potential threat

Further good news came from Eurostat, the EU’s statistics agency. This revealed that retail sales in the eurozone rose by a monthly rate of 1.6 per cent in January, more than offsetting the previous month’s 1.3 per cent decline, and double the consensus in financial markets.

However, the figures pre-dated the escalation of the crisis in Ukraine and the potential knock to confidence. The crisis has raised the spectre of tit-for-tat sanctions between the US and EU on one side and Moscow on the other, potentially weighing on growth.

As Jonathan Loynes, chief European at Capital Economics, pointed out, “At a time when the economic outlook is already highly uncertain, the Ukraine crisis is perhaps another reminder to European policymakers that they cannot rely on an unambiguously favourable international environment to sustain and strengthen the nascent recovery in the region.”

The big question for policy has been whether the glacial rate of recovery would merit action by the European Central Bank. But here the refrain remains familiar – “all talk and no action” was the broad media reaction to the ECB’s March press conference. Indeed, while its president Mario Draghi stressed there was a willingness to act, there seemed to be if anything less pressure to do so than was the case at the turn of the year.

The ECB has tweaked up its 2014 eurozone growth forecast from 1.1 per cent to 1.2 per cent and edged down its inflation forecast to 1.0 per cent. But for 2016 there is something approaching full recovery – a growth rate of 1.8 per cent.

Cause for celebration in the hospital waiting room surely – assuming none of the relatives has passed out with suspense fatigue. n

Although construction in Poland hit something of a brick wall after the Euro 2012 football championship, there are still some good projects. Pictured is the construction of a section of the 550km S8 expressway connecting Wroclaw, Lodz, Warsaw and Bialystok.

ON THE UP

The recession in European construction looks like it has finally bottomed-out, but the recovery will be patchy, with far from spectacular growth. Chris Sleight reports.

Non-residential construction in Europe is expected to see growth as the region’s economy recovers. Pictured is work to increase the capacity of the Stade Vélodrome in Marseille ahead of the Euro 2016 soccer championship. RMD Kwikform supplied the shoring equipment. European construction output fell somewhere in the region of 2 to 3 per cent last year – the exact figure depends who you ask – but the green shoots of recovery started to show towards the end of 2013. The general expectation for 2014 is that growth will return but, as ever, the headline figure will hide very different growth trends from country to country.

Set in a global context, the European construction market has been disappointing over the past few years. It is the last region to emerge from recession, even among the developed economies. Last year’s 2 per cent drop in European output was contrasted by 5.3 per cent growth in the USA and about a 4 per cent rise in output in the normally stagnant Japanese market, where Abenomics and post-Tsunami reconstruction work are providing stimulus.

And the growth levels of major developed regions of the world are a step below what has been seen in the last few years in emerging markets. Even with their various post-crisis problems, construction growth in developing regions varies from about 5 per cent to 7 per cent per annum, pulling the global average growth rate up to about 4.5 per cent last year.

But as lacklustre as Europe looks by comparison, the good news is that it looks like growth is finally returning. This has significance on the global level, as the European construction market represents somewhere in the region of 20 per cent of total world construction output.

The forecast from Euroconstruct, a group of economic forecasters based around the region, is that European construction output will increase by 0.9 per cent this year. The