Construction Sector in Western Europe Hits a Cyclical Trough in 1993

As a result of the expected recovery of the aggregate economy, the volume of construction in Western Europe is likely to stabilize in 1994. An upswing is not expected before 1995. In 1993 the construction industry in Western Europe was strongly affected by the overall recession. The total volume of construction shrank by 3 percent. Finland and Sweden suffered particularly heavy losses, but output also dropped substantially in Spain, Italy, and France. Construction in Austria and Germany was less affected by the general malaise. Vigorous growth in residential construction kept the construction industry from posting negative rates of change. Prospects for 1994 are more sanguine: the expected recovery of the whole economy is likely to stabilize the volume of construction in Western Europe. A resumption of growth cannot be expected before 1995. In Austria, the downswing in the construction sector set in as late as mid-1992, much later than in most other Western European countries. Thanks to increased funding of housing programs by the provinces, the volume of orders as well as the value of new residential construction put in place rose markedly in 1993; most other categories, however, reported production losses. At the present time, there is an excess supply of office and commercial buildings; several projects for office buildings in various stages of planning have been postponed. Public works construction was on the increase during the second half of 1993, but suffered a setback at the end of the year. Austria's building materials industry was severely hit by the drop in demand in 1993; gross production in real terms was lower than in the preceding year. Activity in Austria's construction industry is likely to increase in 1994. After a slowdown in real output growth in 1993 to 0.8 percent (1992 +4.5 percent), an increase by 1.5 percent is expected for 1994.