Seasonally adjusted data:

June: -0.5% m/m, -2.8% y/y
May: -0.2% m/m (revised from +0.1%)
April: -3.4% m/m (revised from -3.7%)
March: +11.0% m/m (unrevised)
February: -9.4% m/m (revised from -9.7%)
January: -0.8% m/m (unrevised)
—

PARIS (MNI) – Eurozone construction contracted in June for the
third month in a row, led by declines in Germany and the Netherlands,
Eurostat estimated Monday.

The 0.5% monthly decline left activity 2.8% lower on the year and
some 22% below levels seen in 2007. Results for 2Q were 0.1% below the
1Q average, which had dropped 3.9% on the quarter.

Building activity alone, which had fallen 3.8% in 1Q, stabilized in
2Q with a 0.1% downturn in June. Civil engineering fell 0.7% in June but
still recovered 0.3% in 2Q from a 4.0% drop in 1Q.

Construction has not yet reached a floor. Indeed, activity has
never really recovered from the crash in 2008 and is being dragged down
further as the economy slumps. Building firms remain pessimistic on the
whole, the European Commission’s surveys show.

However, the overall picture masks typical core-periphery
divergences – with some notable exceptions. Sector sentiment is positive
in Germany, Austria, Finland, Luxembourg and Estonia but quite negative
in the Netherlands, as well as in Spain, Portugal, Greece, Slovenia and
Cyprus. Elsewhere morale is on balance negative.

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 Commission expects Eurozone housing investment to contract
further this year and return to “moderate” growth next year, with
household outlays offsetting a further decline in public investment.

However, “there are no signs yet of a recovery, as financing
constraints and ongoing housing market adjustments in a number of euro
area countries are still weighing on construction investment,” the ECB
said in its latest Monthly Bulletin.

In Germany, activity fell 2.0% in June but managed a 4.1% comeback
in 2Q from a 2.7% drop in 1Q. Rising prices, favorable financing, demand
for housing and promising investment returns all argue for further
growth. While construction firms polled by the Ifo institute are no
longer so optimistic about near-term prospects, 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.

At the other end of the spectrum, Spanish construction, in decline
since last autumn, recovered 1.3% in June to stand just 0.2% below its
low level a year earlier. The bloated housing market will remain a drag
on activity for the foreseeable future. Builders polled by the
Commission in July were somewhat less pessimistic about recent trends
although they saw order books eroding faster.

While the plunge in Spanish construction permits is flattening at
historically low levels, last year’s stimulus measures have been
rescinded in the latest austerity program. New mortgage lending is
falling at double-digit annual rates, as demand is throttled by rising
unemployment and retreating salaries. Housing prices could fall further
with the creation of a structure to allow banks to unload rotten real
estate assets.

In France, activity recovered by 0.7% in June to post a 2.7% gain
in 2Q after -4.8% in 1Q. But developers polled by Insee last month said
demand for new housing is dropping like a stone, mainly due to a
collapse in demand for rental property. They expect housing starts to
diminish accordingly. Home builders reported a slowdown in recent
activity and were quite pessimistic about near-term trends. Insee
expects activity to stagnate in the second half.

In the Netherlands, activity was down 1.4% on the month and 10.2%
lower on the year. The slide in housing prices over the past two years
has accelerated in recent months, giving a 5.5% annual drop in May.
Rabobank analysts expect changes in tax relief on mortgages to depress
prices and turnover in the medium term and have a stabilizing effect
over the longer term.

Only three other Eurozone countries reported construction results
for June. Activity was down 0.2% in Portugal, down 0.6% in Slovakia and
up 6.8% in Slovenia. Annual declines ranged from 7.3% for Slovenia to
18.9% for Portugal.

Most recent results for Italy showed a 0.5% decline in May that
left activity 13.7% lower on the year. Greece posted a 9.1% annual
decline in 1Q, while the annual drop in Ireland in 1Q was 11.7%.

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

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