Paris, 07.01.2011

In an overall context of economic upturn, the situation of the construction sector differs from one country to another: recovery is underway in France, Germany and the United Kingdom, while difficulties persist in Italy, the United States and, above all, in Spain.

Staggered restart for the construction sector

“In the countries that were hit first by the economic crisis, housing construction is struggling to find new impetus. Such is the case in Spain, where construction has slid into lasting crisis, and to a lesser extent in the United States and Italy. In contrast, France is seeing confirmation of growth in construction; Germany is starting to recover, as is the UK, albeit to a lesser extent. The way the construction sector evolves reflects the general state of the economy. This makes it particularly interesting to study the sector country by country at a time when the world economy is starting to grow again,” explains Karine Berger, Head of Market Management and Strategic Marketing, and Chief Economist at Euler Hermes.

France, Germany, UK: recovery is underway

“In France, as in Germany and the UK, the confidence index for the construction sector had touched rock bottom in the first few months of 2009. Since then the trend has reversed. In the three countries the index is still negative, but on a rising trend,” says Didier Moizo, Euler Hermes Sector Advisor.

France: higher prices partly cushioned by lower interest rates

Although real estate prices have risen more rapidly (+134% between 2000 and 2010) than household incomes (+35% over the same period), the fall in interest rates has enabled households to stay solvent; in other words their debt remains sustainable. Following the declines of 2008-2009, new constructions increased slightly in 2010, and the trend is being confirmed in 2011. This upturn is also a consequence of the chronic housing shortage and of the attachment of the French to home ownership.

Germany: stable prices, recovery underway

In Germany, house prices have remained remarkably stable, while incomes have increased by 25% on average since 2000. Despite low prices, German household debt remains high as a result of previous investments due to the country’s reunification. Construction activity however is still limited, and housing starts have shown little growth. The situation of the sector – which has started to recover – can be attributed to the absence of demographic pressure and to German households’ limited attachment to real estate.

United Kingdom: slight rebound after a sharp fall

In the UK, property prices again increased in 2010 following a sharp correction in 2008. Household debt is still high leaving little room for renewed borrowing despite the attractive and stable interest rates that have prevailed since 2009. In this context, construction activity has increased by 8% in two years, but is still well below the peak attained in 2007. The outlook remains favourable.

Continuing difficulties in Italy, the United States and Spain

“The confidence index for the construction sector is still largely negative in Italy, Spain and the United States. While there remains flat in Italy or the United States, the situation continues to deteriorate in Spain,” explains Didier Moizo.

Italy: persistent weakness

In Italy, real estate prices have been increasing faster than income for the past ten years. At the same time Italian households still have low levels of debt compared with their neighbours, even though borrowing has doubled over the past ten years. New constructions are stuck far below the peak attained in 2005. Activity remains weak and nothing seems to indicate a change of trend in the short or medium term.

United States: a market penalised by debt and unsold stocks

With the economic crisis, property prices have fallen by 10% over the course of the past three years. Households remain highly indebted and no longer benefit from still-low interest rates.

New constructions are held back by the stock of three million houses currently on the market. The sector is stalled, and the situation offers little hope of an upturn in new housing starts in the short term.

Spain slides into lasting crisis

In Spain, one looks in vain for an indicator showing possible improvements in the situation. After doubling from 2000 to 2007, prices have shed 13% in the past three years. The rate of household debt remains high, having practically doubled in ten years. New housing starts are currently running at one seventh of the peak 2006 level. Unsold stocks are estimated at 650,000 residential properties, while 82% of Spanish households are already home owners. For three years now the construction sector, a former engine of growth, has been in chronic crisis.

In conclusion, while the crisis has been felt keenly in France for three years, recovery of the construction sector is undeniable in 2011, while Germany has absorbed the shock better but is recovering more slowly. The UK for its part saw activity take off again in 2010, followed by a more moderate recovery in 2011. In Italy the construction sector continues to stagnate, and there is little evidence of recovery in the United States, and even less in Spain.

Please contact:

Karine Berger,

Head of Market Management and Marketing, Head of Economic Research

Email:

karine.berger

@eulerhermes.com

Raphaële Hamel

Group Communications Director

Tel: +33 1 40 70 81 33

Email:

raphaele.hamel

@eulerhermes.com
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