Sector Report from the Bank Austria Economics Department:
Construction economy shows deep cracks
- Construction output to decrease by at least 2 per cent a year in 2009 and 2010
- At the same time, unemployment in the construction sector will increase by over one third
- Major cuts in the commercial construction sector; civil engineering and public structural engineering will help to shore up the economy
- Economic recovery will not help to relieve the tense insolvency situation in the sector
As in the rest of Europe, the construction economy in Austria has two or three difficult years ahead of it. Even if production cuts remain moderate, unemployment in the construction sector will increase significantly. This is the conclusion of the current sector report by Bank Austria's Economics Department. In January 2009, unemployment among this group was already up 12 per cent in comparison with the same month last year, in February it was up 32 per cent and in March 41 per cent. On average, unemployment in the construction sector will increase by more than one third in 2009. The drastic increases in unemployment figures in the construction sector are primarily due to capacity reductions resulting from poor demand, but they must also be viewed against the backdrop of the massive declines in unemployment over the past few years. Over the last three years, the construction sector's output rose by an average of 9 per cent a year in real terms, and the sector achieved a total gross output of EUR 40 billion in 2008. At the same time, employment rose again for the first time in ten years, growing by nearly 2 per cent a year to 248,000 people, and the number of unemployed construction workers fell to a record low, with an annual average of 22,000 people in 2008.
Although the economic stimulus measures implemented by the Austrian government will soften the blow of the declines in demand expected for 2009 and 2010, an annual average decrease in production of at least 2 per cent in real terms can be anticipated. The cuts should remain moderate in comparison to the losses the sector will suffer on an international scale and especially in comparison to industrial sectors in Austria that are heavily dependent on investment. "The construction recession will put an enormous strain on the labour market, particularly since the sustainable recovery of the construction economy will take some time. Even after 2010, Austria's construction economy will not return to its high of previous years," says sector analyst Günter Wolf.
The decline in the construction economy will hit structural engineering the hardest, in particular in the commercial construction sector. Industry and trade will substantially curtail their investments. The stimulus measures from the public authorities will not be able to prevent an annual decline in production to the tune of 5 per cent in real terms in 2009 and 2010. The cuts that can be expected in the construction of new flats will be compensated for in the sector by increasing investments in renovation. In the end, civil engineering will remain a stronghold for growth for the construction economy over the next two years. The additional public investment programmes will not only stabilise the civil engineering economy but also provide an estimated average increase in production of 2 per cent in 2009 and 2010.
"The construction economy is one of the sectors that sees the most new companies founded, but is also one of the most prone to insolvency," says Bank Austria economist Wolf. "At 3 per cent, the insolvency rate in the construction sector is well above the Austrian average of 1.2 per cent." The data from the credit reporting agency KSV1870 show that the number of insolvency cases has barely decreased over the last few years, even during the boom in the construction economy. The economic downturn will cause the sector's insolvency situation to deteriorate significantly. In addition, the upcoming recovery of the construction economy is not likely to bring any relief to the insolvency situation. Since there will be complete freedom of movement for workers in the construction industry from the new EU member states starting at the latest in 2011, the competitive pressure in the sector will only intensify.
Enquiries: Bank Austria Press Office Austria
Tiemon Kiesenhofer, Tel. +43 (0)5 05 05 ext. 52819;
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