Seasonally adjusted data:

September -1.4% m/m, -2.6% y/y
August: +0.6% m/m (revised from +0.7%)
July: +0.3% m/m (revised from +0.1%)
June: -0.3% m/m (revised from -0.4%)
May: +0.3% m/m (unrevised)
April: -3.2% m/m (unrevised)
—

PARIS (MNI) – Eurozone construction fell 1.4% in September, with
declines in all reporting countries except Germany and Slovakia,
Eurostat estimated Monday.

Thanks to modest gains during the summer, the sector was stable
overall in 3Q for the second quarter in a row after declines of 3.5% in
2Q and 1.3% in 1Q. Activity in September was 2.9% lower on the year and
more than 20% below levels in early 2008.

Building activity alone dropped 2.3% in September for a 0.1% dip in
3Q, while civil engineering recovered 0.7% on the month, leaving 3Q flat
overall.

Sector activity has been on a ragged descent since housing bubbles
burst in several countries in 2008. The downward trend flattened
somewhat when other sectors recovered temporarily, while harsh winters
and spring thaws accentuated volatility.

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

“In the near term, the market will continue to be hit by uncertain
economic growth prospects and high unemployment, especially in the
younger population,” the Bank of Italy predicted last week, highlighting
the impact of cutbacks in fiscal incentives in many countries.

Certainly there are no signs yet of a turnaround. Builders’
assessment of order books slumped to a 22-month low in October,
according to a European Commission survey. Overall sector sentiment was
below average in all countries except Germany and Austria.

“The ongoing adjustment in housing markets continues to impact
residential investment and timely indicators such as building permits do
not suggest any substantial improvement in the near future,” the
Commission said earlier this month.

After a 3.5% drop this year, the Commission expects construction
investment to decline another 1.3% next year, then recover by 0.9% in
2014. “However, contractions will persist in countries facing the
strongest housing market corrections, notably Spain and Ireland,” it
noted.

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 September, overall activity slipped 0.2% after a 1.6% rebound
in August, giving a 1.4% gain in 3Q after three quarters of steeper
declines.

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.
Fiscal consolidation and contracting corporate investment is likely to
weigh on non-residential construction as well.

In the Netherlands, activity was down 1.0% in September to a
31-month low, yielding a 1.6% drop for 3Q after five quarters of
decline. The slide in housing prices over the past two years accelerated
in past months, throttling turnover and dampening consumer morale and
spending.

Amid tight budget constraints, the new coalition government intends
to further reduce the fiscal incentives that contributed to the earlier
housing bubble. Natixis analysts expect housing prices to decline 5%
next year after -7% this year. ING analyst Dimitry Fleming agrees:
“There is little hope that the housing market – one of the reasons the
economy stands out negatively compared to other core Eurozone countries
– will experience a revival in 2013.”

In France, housing prices are 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 fell
0.5% in September after three months of gains to stand 1.4% lower on the
year.

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 still satisfied with current
business but are increasingly worried about medium-term prospects.
Activity bounced back 2.7% in September, retracing the drop in August
for a 0.5% rise in 3Q after a 4.4% rebound in 2Q. The German
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, activity dropped 8.0% in September to the lowest level in
14 years, and marking the sixth successive quarter of decline. In
contrast to other sectors, where sentiment has followed the overall
economy lower, construction confidence had been on the mend since a
trough in early 2010, but it fell back to a 12-month low in October as
orders eroded, according to Istat. “Leading indicators do not point to
an improvement in the coming months,” according to the Bank of Italy.
The Commission expects sector investment to decline into 2014.

Only three other Eurozone countries reported construction results
for September. Activity plunged 13.4% in Portugal to the lowest level on
record, since January 2000. Slovakia sustained 0.2% dip after three
months of decline to stand 14.9% lower on the year. In Slovenia, by
contrast, construction surged 17.1% after a 1.7% upturn in August but
was still 3.9% lower on the year.

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

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