Construction investment is benefitting from the recovery in housing markets
The construction sector is set to register its fourth consecutive year of recovery in 2018. It continued to expand during the first half of the year, albeit more slowly than investment in equipment. The expansion was particularly strong in Spain, the Netherlands and Germany (all growing at 2% or above), but lost some pace in France and Italy. Overall, in the second quarter of 2018, construction investment registered its twelfth consecutive quarter of positive growth.
The European construction equipment sector delivered another positive surprise in the third quarter of 2018: Contrary to the expectations of a market that is edging closer to saturation, further growth was experienced. Equipment sales in Europe grew by 9.4% in the third quarter, and year-to-date growth is at 9.2% after nine months. In Western European markets, many of which are already at, or close to peak levels, sales expectations were surpassed, and they made a significant contribution to growth. In contrast, the Turkish market fell by two thirds in Q3, and continues to be in freefall. Interestingly, both earthmoving and road equipment picked up in the third quarter, while recovery in the building construction equipment sector slowed down. As of today, total growth in sales at between 5% and 10% is the most realistic forecast for the European equipment sector in 2018.
The cyclical pattern of the sector still suggests that towards mid-2019 (after the Bauma exhibition) the market peak will be reached, and the industry can expect a slight downturn. By then, recovery of the market will be very advanced, but will still fall short of the peak levels reached in 2007. Based on current economic fundamentals, and the underlying level of demand, a strong recession can be ruled out for 2019.
The international business climate has never been as uncertain as it is today. The pillars on which global free trade and free circulation of goods and services are built on, have never been so fragile, both within the EU and elsewhere.
These trends are consistent with the results of the latest CECE Business Barometer (October), which shows that manufacturers in most European regions expect sustained demand in most European markets. As the economic crisis in Turkey continues, expectations for this market are falling sharply. European manufacturers have a more pessimistic view of the Middle East (dispute over Iran).
The Global Barometer Index remains at high levels. Orders continue to increase on average, but the momentum is slowing. The sector is at an advanced stage of the economic cycle. The question is therefore not whether the European market will experience a cyclical slowdown, but when it will happen. According to the most realistic scenario at the moment, this should occur in 2019.
About the report
The CECE Annual Economic Report covers the macroeconomic situation, the performance of the construction sector and the main markets and sub-sectors of the European construction machinery industry. It also includes data from the national member federations that provide a clearer picture of regional developments in the European construction equipment sector.