The construction recession will be deeper – that’s the forecasters latest view

The construction recession will be deeper – that’s the forecasters latest view

The latest industry forecasts for construction activity are, as expected, much gloomier than they were as recently ago as last autumn.

Both Experian and the Construction Products Association have trimmed their expectations for growth in construction output for this year and next.

Experian is estimating a drop of 8.5% for last year on current data followed by a 3.5% drop this year, while CPA expects a 8.8% for 2012 with a of 2.2% for 2013.

The graph (right) shows how these compare with the previous autumn 2012 forecast.

Both expect 2014 to register growth. So on this basis the current industry recession will be deeper, but not necessarily that much longer than previously expected.

It may seem a bit shocking but the expected drop in 2012 will be the fourth biggest recorded since 1955, following hard on the heels of the biggest recorded fall, which occurred in 2009.

But, as the graph shows, much of this volatility results from the mini-boom created by the stimulus introduced by the previous Government. This put a helpful temporary break on a construction recession that most probably would have wreaked far more damage on the corporate structure of the industry and led to a far more brutal culling of jobs.

Before exploring why the forecasters took a gloomier view of construction, it is worth noting the human and economic implications of these forecast revisions.

Taking the cut of between 2% and 5% to industry output over the next four years implicit in the CPA forecast in very crude terms suggests the industry will be employing between 40,000 and 100,000 fewer people.

Furthermore the nation will be deprived of much-needed housing and infrastructure which would help to improve both lives and the efficiency of the economy.

So why have the forecasters have become gloomier? Well the simple answer is that data are worse. Output is falling faster than expected, so the base is lower.

But also the uncertainties that have surrounded the forecasts for many years have not been resolved. These are dragging on the economy.

However, it should be noted also that were these issues resolved and went badly these forecasts would now look far worse. But that has been written into the forecasters’ commentary for some while. They have consistently said the risks were on the downside and this remains the case.

And if we look to a sector that this uncertainty is most likely to effect, such as private commercial, we see the forecasters have cut their forecasts here quite noticeably.

But in line with this we are also seeing the impact of the continued squeeze on households. Both forecasters have trimmed their expectations for private sector housing repair and maintenance.

The real question is whether they are being over optimistic in their prediction of growth in 2014.

I suspect when we see the Hewes & Associates forecast in a week or so that it will take a far less optimistic position on the medium term.

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