Eastern Europe construction growth outstrips the West

Eastern Europe is spearheading the recovery in European construction thanks to having joined the EU and robust inward investment.

Research from economic forecaster Experian shows that Eastern European construction grew by 6.6% in 2004. This contrasted with weaker growth of 1.9% for Western Europe.

Experian said the gap would widen further. It predicted that Eastern construction output would soar to 22% in 2007, compared to a forecast growth rate of only 5% for Western Europe in the same year.

Experian’s findings highlight a major acceleration in Eastern European construction after having grown at the relatively meagre rates of 1% in 2002 and 1.9% in 2003. The turnaround is thought to be due to accession to the EU, strong domestic investment, and burgeoning wealth and prosperity.

James Hastings, associate director at Experian, said investors were being attracted to Eastern countries that have joined the EU because they were now benefiting from “reduced bureaucracy and favourable trading conditions with other EU members”. He added that increasing prosperity in the region was making consumers more affluent and labour costs were low.

The strongest construction output was seen in the Czech Republic and Norway, which each increased by 9.7% during 2003. The UK’s output in 2004 was a steady 3.3%, according to Experian. While output declined in Germany, the Netherlands and Portugal, Germany remained Europe’s largest market, almost 10% bigger than the second market, the UK.

Increasing prosperity in the region is making consumers more affluent and labour costs are low

James Hastings, Experian

Hastings, however, stressed that in terms of output, Eastern Europe’s contribution to overall European construction growth was “miniscule”.

European construction growth in 2004 was 2.1%. This was up considerably on 2003’s paltry 0.5%, yet it was still below the European GDP growth of 2.3%.

Experian reckoned that rapid price inflation across much of Western Europe, resulting from chronic under-supply, attracted developers who were keen to capitalise on increasing margins.

Residential construction was the main driver of growth, accounting for 46.9% of total growth in the Europe. The five largest construction markets, France, Germany, Italy, Spain and the UK, accounted for 73% of total output in Europe during 2004, a share which Experian expected to increase.

Sweden raised eyebrows by increasing its output by 3.5% in 2004, following two years of declining output. This was driven mainly by residential construction. Rapidly rising prices, resulting from acute under-supply in the Swedish residential market, spurred developers to build more homes, particularly in urban areas.