Christmas is approaching, and not in a good way. In fact, says Richard Steer, it just reminds us of the wretched state of Europe’s finances and how we need China to come to our rescue
As we near Christmas time, the shakers and movers in our industry meet up at impromptu gatherings to toast the coming year. I predict that this year most conversations concerning the state of the industry will be rather less festive and more funereal in content. I feel an almost universal atmosphere of concern as the thought of a double dip recession has morphed into a reality in our industry.
The truth of the matter is that any of the medium or larger-sized firms operating in the built environment in consultancy, design or contracting is facing a bleak future. The smaller operators and sole traders who need cashflow have even bigger issues to contend with and will be appealing to their bank managers who are likely to display the empathetic qualities of Ebenezer Scrooge.
One only has to look at the latest missive from the National Specialist Contractors Council (NSCC) to see the vulnerability of the industry at present. They noted that six established specialist contractors have had to be placed in administration in the past few weeks. The oldest, Classic Excel - a specialist in suspended ceilings and dry lining based in Northumberland - had seen out more than one previous recession since it began trading in 1983. The fact that this business was owned by the president of the NSCC says something about the state of the sector.
The smaller operators and sole traders who need cash flow will be appealing to their bank managers who are likely to display the empathetic qualities of Scrooge
The latest downgrade by the Construction Products Association showing a steep decline in output of 3.6% next year did nothing to calm nerves or provide a feeling of security and warmth. Those that have specific exposure to education, public housing, retail and PFI-based initiatives have felt the cold chill of recession for some time.
The safe haven areas have been energy, some transport and niche sectors such as student accommodation, but these are not enough to keep the industry moving forward. Looking abroad, money will start pouring into the newly freed Middle East nations like Libya, Egypt and Iraq and these may offer some reconstruction work while India, China and Brazil offer opportunities for those that have invested in these countries in the past.
The image presented by our political leaders in Europe trying to promote confidence in the financial markets is akin to a nervous game of euro debt pass-the-parcel, except nobody wants to be anywhere near this toxic bundle. Last year we were told it was all a matter of time until we emerged from recession; now, apparently, it is only a matter of time until the euro implodes, making 2008 just the precursor for much worse. German chancellor Angela Merkel, never the most cheerful in the room, put a further dampener on the mood with her prediction of a stagnant economy for the next decade.
It is very different in China - from where I have just returned. It is learning from the mistakes of others and does not want the house price bubble that so harmed the West (and arguably got us all into this mess) to threaten its booming economy. The Beijing branch of the China Construction Bank recently announced its plan to raise mortgage rates for first-time buyers. This was followed in 14 other large cities where rates were raised by 5-30% above base rate overnight. Housing transactions are at a three-year low in Beijing, Guangzhou and Shanghai. Local and national government is playing a game of chicken with developers, who are resisting price drops and sitting on unsold stock.
Perhaps they will look to diversify away from a reliance on their domestic economy, and just maybe some future UK Christmas functions will be funded by the construction entrepreneurs of China and India. They may not be able to save the euro but they could want a piece of UK construction. And for those facing a bleak future at the moment, such an approach could be a life-saver.
Richard Steer is chairman of Gleeds, Worldwide