Construction Boom Weakens in Western Europe

In the late 1990s, the construction industry was picking up momentum for the first time in many years. The 15 Euroconstruct countries achieved a real production growth rate of 3 percent in 1999, a substantial improvement over the 0.8 percent rate of 1997 and 1998. The expansion will slow down moderately in 2000, and more rapidly in the next two years: growth projections for the Western European construction industry are 2.6 percent in 2000 and 1.5 percent in each of 2001 and 2002. After noticeably contracting in the 1990s, the construction industry's contribution to GDP has recently been stabilising (10.2 percent in 1996), but will once again decline to 9.7 percent by 2002. In the CEE countries, construction is forecast to achieve accelerated growth rates in both 2001 and 2002. The relatively constant rise of construction output in 1999 and 2000 has been driven by a boom in non-residential building and civil engineering. New residential construction is similarly recovering. In Austria, the construction industry recorded a real growth rate of 1.3 percent in 1999, a loss over 1998, when production grew by 4.3 percent fuelled by strong demand for renovation and modernisation. The outlook for 2000 is similarly modest – production should grow by 1.5 percent in real terms, and by 2 percent in 2001 and 2002 respectively. With this, the construction industry's performance will lag far behind the expected overall growth rate of 2.8 percent (in 2000 and 2001) and 2.6 percent (2002). The unpropitious prospects for the construction industry are chiefly the result of ebbing demand for new housing and renovation. The market for new housing is largely saturated, and the expiry of tax breaks granted for dissolving the rental reserve, which became effective as of the end of 1999, has virtually eliminated incentives for investing in the renovation of private housing. Construction will thus depend on contracts for new office complexes, roads and rail projects, whereas demand will be rather weak in all other sectors.