Restructuring in the construction sector
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Recent developments in output and employment
The financial and economic crisis, which began in the United States (US) and spread at varying speeds to other countries, depending largely on the state of their financial sectors and their economic links with the US, affected the construction sector across the EU Member States to differing extents during 2008.
In the EU and Norway as a whole, the index of production for the construction sector started to decline from the second quarter of 2008, and in the fourth quarter, production was over 7% less than a year earlier (see figure). However, new orders, which are a precursor of developments in 2009 and beyond, declined by 14% compared with the same period in 2007.
Employment, which always lags behind changes in production, although to varying extents depending on new orders and on expectations about future developments, was about 3% lower at the end of 2008 than a year earlier.
Source: Eurostat, Short-term indicators
Quarterly indices in construction sector, EU27 and Norway, 2005–2008
The decline in production in the construction sector, however, started earlier in some countries and has differed markedly in terms of scale as well as its consequences for employment, reflecting in part the extent of the expansion of the sector in earlier years and, in part, the general health of the economy. In Ireland and Spain, in particular, where construction had grown significantly over the preceding 10 years and had come to account for a large share of total employment in the economy, the decline in production was already evident by the second half of 2007. The decline was also evident during this period in Hungary, which was facing growing economic problems.
In Ireland, therefore, production was some 18% lower in the fourth quarter of 2007 than it had been a year earlier. In Hungary, production was 22% lower in the same period, while in Spain, where the decline was initially more gradual, it was about 8% less (see Table A2 in the Annex). The proportion of people employed in construction in Ireland was already some 6% smaller at the end of 2007 than it had been at the end of 2006, while the share of employment was 12% smaller in Hungary. In Spain, the decline in output had not yet affected employment and the proportion of people in employment in the sector was almost 3% higher than a year earlier.
In 2008, production in construction stabilised in Hungary, although employment continued to fall but at a slower rate. Meanwhile, in Ireland and Spain, the decline in production accelerated. For instance, in Ireland, output was over 26% lower in the fourth quarter of 2008 than in the same quarter of 2007 (and 40% lower than two years earlier) and in Spain it was 18% lower. Other countries also showed significant reductions over the year, especially among the new Member States (NMS) that joined the EU in May 2004 – for example, Bulgaria registered a decline in production of 8%, Lithuania about 14%, Latvia 16% and Estonia 19%. Among the former EU15 countries – before the entry of the NMS to the EU in 2004 – output declined by almost 9% in Belgium and over 7% in the UK.
At the same time, production increased in seven countries, although by less than 4%, except in Sweden (almost 8%), Slovakia and Romania (about 14% in each country).
The fall in production in Ireland and Spain was associated with a substantial reduction in employment during 2008. At the end of 2008, employment in both countries was 20%–21% lower than it had been at the end of 2007 (see Table A3 in the Annex). In the other countries under review, employment fell by much less or actually rose. Indeed, employment increased in the majority of the countries during 2008, even if only slightly in most cases. Employment fell by over 2% only in Malta (3%), Portugal (3%), Hungary (5%), Estonia and Denmark (almost 6% in both cases). In many countries, therefore, the decline in production in the latter part of 2008 was not reflected in a reduction in employment before the end of 2008 – although no data for the fourth quarter of 2008 were available for a number of countries at the time of writing.
The decline in new orders during 2008 is relatively general across the EU, with only Austria (although only slightly), Romania and Slovakia, showing an increase among the countries for which data are available – namely 15 of the EU Member States plus Norway (see Table A4 in the Annex). In Norway, Sweden and the UK, new orders were down by 25%–30% in the last quarter of 2008 compared with the same quarter in 2007, despite the fact that employment in Norway and Sweden at the end of 2008 was still above the level recorded a year earlier. Furthermore, in Luxembourg, Poland and Portugal, new orders were down by over a third in the last quarter of 2008. In these countries, in particular, therefore, a substantial decline in production is expected during 2009, and will be accompanied before long by a marked reduction in employment. At the same time, however, government efforts in many countries to counter the decline in demand, which have involved an expansion of public investment, may serve to offset such a reduction.
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