Seasonally adjusted data:

August: +0.7% m/m, -5.5% y/y
July: +0.1% m/m (revised from -0.3%)
June: -0.4% m/m (revised from -0.6%)
May: +0.3% m/m (revised from +0.1%)
April: -3.2% m/m (revised from -3.4%)
—

PARIS (MNI) – Eurozone construction expanded by 0.7% in August, as
an upturn in building activity offset a decline in civil engineering,
Eurostat estimated Wednesday.

Thanks to an upward revision for July, two-month results were 0.3%
above the 2Q average, which had slipped 0.1% on the quarter after
declines of 3.5% in 1Q and 1.4% in 4Q. Activity in August was 5.5% lower
on the year and some 28% below levels in early 2008.

Building activity alone, which had recovered 0.5% in 2Q after a
3.9% plunge in 1Q, bounced back 1.2% in August from a 0.3% downturn in
July. Civil engineering fell back 0.7% in August after stabilizing in
July and 2Q.

From a longer perspective, recent monthly fluctuations appear like
moguls in a relentless slide that began when housing bubbles burst in
several countries. The downward trend flattened somewhat when other
sectors recovered temporarily, while harsh winters and spring thaws
accentuated volatility.

With the economy as a whole now in contraction mode, cutbacks in
business and government investment, rising unemployment and more
cautious bank lending can only delay further any recovery in
construction, despite historically low official interest rates.

Certainly there are no signs yet of a turnaround. Builders’
assessment of order books slumped to a 21-month low in September,
according to a European Commission survey. Overall sector sentiment was
below average in all countries except Germany and Austria.

The insurance group Euler Hermes sees Eurozone activity contracting
by 1.2% this year, with the ongoing slump in Mediterranean countries
(-2.6% in Greece and -4.5% in Spain) offsetting modest gains elsewhere
(France +0.2% and Germany +0.7%).

The financial consulting firm Deloitte sees construction investment
declining by 0.4% in Europe this year and by 1.7% in the Eurozone alone
and expects a recovery of 1.4% in Europe next year.

The Commission’s scenario is similar: “Overall, housing investment
is expected to shrink further in 2012 in the EU and the euro area,
before moderate growth sets in 2013. The positive impact of the
improving situation of private households will be partly offset by the
negative impact of fiscal consolidation on the government component in
construction investment.”

In Spain the housing market is practically frozen, as prices have
not come down enough in recent years to unload a huge overhang of unsold
units. In August, overall activity edged up 0.6% after declines of 1.2%
in July and 2.6% in 2Q. Public stimulus measures fell victim to budget
consolidation this summer and the creation of a “bad bank” for toxic
real estate assets could further depress prices if unsold units are
dumped into the market. Commerzbank analysts expect the sector to
stagnate for at least a couple years more, with contracting investment
trimming several points from GDP.

In the Netherlands, activity was down another 0.1% in August after
four consecutive months of moderate decline. The slide in housing prices
over the past two years accelerated in past months, throttling turnover
and dampening consumer morale and spending. Rabobank analysts expect
changes to tax relief on mortgages to depress prices and turnover in the
medium term and have a stabilizing effect over the longer term.

In France, housing prices are just beginning to soften as demand
for mortgages plunges and market turnover stalls. Builders remain quite
pessimistic about near term activity for both home building and
commercial construction, according to Insee’s surveys. Activity
rebounded by 1.4% in August after a dip in July and a 3.0% recovery in
2Q. Insee hopes that a further recovery in civil engineering will offset
declines in other branches in 3Q.

In Germany, by contrast, rising home prices, favorable financing,
demand for housing and promising investment returns all argue for
further expansion. However, a recent MNI report suggested that home
sellers are coming up against price ceilings in the most attractive
markets like Munich, Hamburg and parts of Berlin. In general, building
firms appear quite satisfied with current business but are increasing
worried about medium-term prospects. Activity fell back 2.8% in August
after gains of 1.4% in July and 4.4% in 2Q. The construction association
HDB sees home sales rising 7% this year and commercial sales up 5%, more
than offsetting a 1% contraction in public works.

In Italy, seasonal adjustments for the vacation month of August
transformed a 46.5% nominal plunge into a gain of 5.3%. This still left
activity 9.0% lower on the year. In contrast to other sectors, where
sentiment has followed the overall economy lower, construction
confidence has been on the mend since a trough in early 2010, according
to Istat. September’s level, boosted by a strong rebound in the building
branch, was the highest in three years.

Only three other Eurozone countries reported construction results
for August. Activity slipped another 0.5% in Slovakia to stand 11.9%
lower on the year. Slovenia posted a 0.9% upturn for a 14.8% decline on
the year. Portugal’s 10.4% rebound followed a flat reading in July and a
12.0% dive in 2Q, leaving activity 17.3% lower on the year.

–Paris newsroom +331 4271 5540; e-mail: ssandelius@mni-news.com

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