Data for the first quarter of 2008 suggest that construction may continue to grow fast and that the sector is overcoming barriers to growth. Construction growth is driven by investment demand. Growth in investment is fast because corporate profitability is high and companies have money to spend for expansion. Construction growth is also boosted by EU funding and foreign direct investment.
In 2007 total construction output increased by 12% and output generated by companies employing more than nine people rose by 15.7% compared to 2006. These figure were lower than had been projected. The sector faces many growth constraints combined with strong pressure to carry out projects associated with the Infrastructure and the Environment Programme 2007-2013, particularly the construction of roads and motorways, preparations for the Euro 2012 football championship, and plans to build more homes.
Data for the 1st quarter of 2008 suggest that growth in construction workloads accelerated; in January construction output was higher by 6.8% year on year, in February it was higher by 20.7%, and in March higher by 16.3%. In the year to March 2008 the increase was 17.4%. In the 1st quarter all categories of construction companies recorded increases in sales. The fastest growth was recorded by companies preparing sites for development (over 60%). An almost 28% increase in finishing work was attributable to seasonal factors: much finishing work is always done in the first quarter when other work slows due to weather conditions. Civil engineering work and construction of buildings and structures increased by around 18%. Road-building companies recorded a rise of over 12%. Growth was also recorded in residential building. The number of homes completed in the 1st quarter of 2008 was 35,100, up by 30% on January-March 2007. The growing number of home permits and starts seems to indicate that the housing situation will continue to improve. The year 2008 may well turn out to be the best year since 1990 in terms of newly completed homes. But it should be remembered that, owing to the seasonal character of construction work, it is difficult to make reliable projections for a year as a whole on the basis of statistics for the first months. Fluctuation may be very significant: in the 1st quarter of 2006 construction output dropped by 20% while in the 1st quarter of the next year it rose by 50%.
According to some projections, construction will grow by 13-15% this year. This growth rate, although high, would not be sufficient to enable the implementation of projects related to the Euro 2012 championship, road building projects or many other projects to be partially funded by the EU. In this situation, legislative and administrative changes are needed to remove barriers to construction growth.
The general outlook on construction was positive in April 2008 and more favourable than in March. However, it was slightly worse than in April 2007.
In April 32% of the surveyed companies indicated an improvement and 7% a deterioration in business conditions. The surveyed companies recorded a faster increase in orders than in March and projections for the next three months were optimistic. 31% of the surveyed companies, the same percentage as in April 2007, reported they were going to do some construction and assembly work on foreign markets. They expected that an increase in orders for construction and assembly services abroad would be slightly higher than previously projected. The surveyed companies also expected that in the next three months construction prices might increase.
In April 4.5% of the surveyed companies reported no barriers to their construction and assembly operations. The barriers created by labour costs, competition from other companies, skill shortages and costs of materials continued to be high (these barriers were signalled respectively by 59%, 55%, 53% and 37% of companies). The barriers created by equipment shortages, material costs and difficulty obtaining loans diminished the most compared to a year before.
Some 8% of the surveyed construction and assembly companies assessed their production capacity as excessive, 76% as sufficient and 16% as too low to meet orders expected in the next 12 months. In April capacity utilisation stood at 83%.
