Annual construction output forecast to fall £23.5 billion over next two years

Annual construction output forecast to fall £23.5 billion over next two years

The first of the spring forecasts for construction has winged its way into my inbox. It is the Hewes and Associates’ forecast.

Hewes expects on the basis of current data that levels of construction output will fall back to those last seen in 1996 before we see a recovery.

This may seem a bit drastic, but I fully expect other forecasters to be plotting the future in a similar direction.

Broadly the forecast is of the same shape as that of three months earlier, but a bit sharper with the recession expected to be slight deeper but shorter lived.

hewes forecast spring 2009.GIF

The big forces driving the numbers down are again the private housing sector (forecast to be down 38% in 2009), commercial construction (forecast to be down 22% in 2009) and both private housing (down 15%) and private non-housing (down 10%) repair, maintenance and improvement.

The drop in these four large sectors will rob the industry of about £14 billion of work at current prices next year.

Overall the industry is expected to see about £17 billion less work and for annual output to shrink by about £24 billion at current prices from the peak of 2007 to the trough when it arrives in late 2010 or early 2011.

The two sectors that Hewes expects to grow next year are infrastructure and public non-housing.

This forecast may seem dramatic, but as I see it the levels of risk to the sector further out are very unclear but potentially huge.

Faced with a massive budget deficit, it is more likely than not that we will see cuts to public spending in the early years of the new administration after the election. The big questions are just how deep and how much of the slack will the private sector be able to pick up.
The answers to those questions are unknowable (until that is we get there).

Hewes does tend to edge to a more pessimistic position than others. But I don’t feel that his take here is in anyway unreasonable. And certainly he has not factored in exceptionally deep cuts in public spending, given that the public purse has been underwriting historically high levels of construction for many years.

All in all these are challenging times for the industry and will test its durability.

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