The outlook for 2012 is gloomy but key government policy initiatives could provide the boost to confidence that the industry needs

The ghouls and ghosts of next week’s Halloween will be as nothing compared with the frightening spooks that may well be haunting us in 2012, (the Olympics extravaganza aside). With public sector work let before last October’s spending cuts coming to a close, and the private sector pipeline still looking unpalatably thin, economists and chief executives alike have for months been warning that next year could represent the toughest challenge so far for an industry that may not yet have felt the full extent of recession.

This week, the latest forecasts from the Construction Products Association suggest these fears are becoming increasingly justified: the trade body now expects output to drop a massive 3.6% next year, compared with its previous estimate of 2.8%. The organisation’s economics director, Noble Francis, believes that firms should be “more concerned than they were three months ago”, a clear verdict on both the impact of the eurozone crisis on market confidence, and the instability of any signs of improvement in a sector where future recovery is resting on such shaky foundations.

This puts the government in a difficult position. With the outlook for construction, and of course the wider economy, worse than expected, many will repeat the calls for a boost to public spending. But politically, that life raft has almost certainly been blown out of the water.

That fact aside, however, the dark outlook could be considerably lightened by government action on a select group of key policy initiatives. In the infrastructure sector, acceleration and finalisation of work on energy market reforms would foster the confidence needed to secure investment from the private sector. And swift moves to put in place revised PFI or PPP models - rather than the lengthy review process the government threatens - would allow financial investors the certainty at least to examine a re-entry into a market which, in the current climate, has to have a major part to play in upgrading the country’s assets. Similarly, any intervention that could be made to release mortgage finance - for example, offering mortgage indemnity guarantees to first-time buyers - could add heat to a lukewarm housing sector.

Then there is the conversion of public sector assets. With an estimated £17bn in surplus assets across local and central government, and national shortages of education facilities, community healthcare provision and housing, the opportunity is there to adapt these buildings to alternative use. It’s already being done on a small scale with the free school programme, despite difficult beginnings, and former Partnerships for Schools chief executive.

Tim Byles has his eye on using conversions of public sector sites to fuel a £1bn programme of work across the education, residential and healthcare sectors. Any additional measures the public sector could take to stimulate the release of assets for use in programmes like these would also help to generate work in the sector.

Individually, of course, none of these initiatives is going to be construction’s lifeline. But each has the potential to restore some confidence to a sector, and an economy, that is in increasingly urgent need of a reason to be cheerful. Any combination of these - ideally, of course, allied to the EU getting its act together - would give some boost to the outlook for next year. And, crucially, at little or no immediate cost to the public purse.

Sarah Richardson, deputy editor