According to the forecasts of the Construction Product Association (CPA), Great Britain's construction output in 2023 Spring will decrease by 6.4% this year and bounce to 1.1% in 2024.
Compared to its forecasts three months ago, which was a fall of 4.7% in 2023 and a rebound of 0.6% in 2024, this is a downgrade, each gloomier than the one before.
Image by Paul Brennan from Pixabay
Reason: Housing & Infrastructure
The CPA says the falling forecast is primarily driven by the two largest factors - ① private new housing and private housing repair, maintenance, and improvement (RM&I) and ② the government’s recent announcements of major infrastructure project delays.
● Private New Housing and Private Housing RM&I
The two sectors make up around 40% of the total construction output. They are predicted to be the ones in which demand is mostly affected by falling household incomes and higher interest rates under a macroeconomic backdrop.
The private housing industry is forecast to experience the sharpest contraction in 2023, with a 17.0% decline in output in 2023. Continued pressure on household budgets and the lack of stimulus for home buying in the government’s Mini Budget, particularly first-time buyers, means that demand from a key segment of the market will remain restrained.
Private housing RM&I is similarly vulnerable to the decline in real incomes and also has a slower demand.
Rebecca Larkin, CPA Head of Construction Research, said that the headwinds of falling real incomes and interest rate rises remain, despite an improvement in the outlook compared to six months ago. Private housing and private housing RM&I, the two most important sectors of the construction industry, are also most exposed to a downturn in discretionary household expenditure. The sharp fall in the housing industry in 2023 means that overall, a construction recession will be inevitable.
Image by F. Muhammad from Pixabay
● Infrastructure
Growth is expected in infrastructure, the third-largest sector. But it has been lowered in the Spring Forecasts to 0.7% for 2023 and 1.2% for 2024, from 2.4% and 2.5% respectively in the Winter, owing to the government postponing HS2 work at Euston station and work on significant road projects.
Larkin also commented on the infrastructure, that the prospect of delays leading to even greater cost overruns on large infrastructure projects, poses a risk to longer-term activity, as opposed to the relatively fast bounce back that is anticipated in housing in 2024. This makes it clear of the government’s decision to keep capital spending budgets unchanged in cash terms from 2024/25.
Image by Pexels from Pixabay
Spring 2023 Forecast: Optimistic Amid Challenges
Contrary to construction industry forecasts, demand for softwood appears to be on the rise. Softwood imports in the first two months of 2023 increased by 2.4%. This increase is attributed to a good start to the year for the building RM&I market, which climbed to 11.4% in February compared to last year.
What’s more, the CPA also points out that a wider recovery in economic growth in 2024 will boost the demand for both new build housing and RM&I activity.
Last but not least, the EU economy was expected to increase in the first quarter of this year, according to the latest data. Though a prediction of economic contraction was made in the last quarter of 2022 throughout the first quarter of 2023, the better starting position lifts the growth outlook for the EU economy for 2023 and marginally for 2024.
Paolo Gentiloni, Commissioner for Economy, said that the EU economy is doing better than projected last autumn. A recession is hoped to be avoided and moderate growth will be seen this year and next. Since there are far too many threats to ignore, “we must remain vigilant”.
Reference: 1. The Construction Index 2. European Commission
Follow us
BuildMost is an O2O Global Platform to Find Building Materials & Equipment, Furnishings, and Design Services.
Visit BuildMost Official Website
Download the BuildMost APP
Follow BuildMost Official on WeChat
0 Comments
