Nicholas Watson in Prague -

Euroconstruct's survey forecasting that Europe faces the most serious fall in construction output since the 1980s makes for grim reading. Yet the survey provides yet more evidence that growth in Central and Eastern Europe, while slower than in previous years, will help offset the decline in the markets further west.

The industry group's latest forecasts released in December indicate that the expectations of its members across the continent have significantly deteriorated. Euroconstruct is now forecasting a contraction in construction activity of 2.5% in 2008 and 4.3% next year. Back in June, the group's forecast was for a decline of just 0.3% this year and a modest 0.2% rise in 2009.

"Not only have 2008 and 2009 estimates been scaled back, but the revised forecasts also point to the most difficult years for the European building sector since the early 1980s - one has to go back to 1981/1982 to find the last year in which construction output fell in two consecutive years," says Barry Dixon, an analyst with the Dublin-based brokerage Davy. "Moreover, if Euroconstruct is correct, construction volumes in 2009 will return to 2005 levels. By any measure, this amounts to a very serious contraction."

Looking behind the headline numbers, there is a split between the two halves of Europe. The construction market in Western European is expected to see activity fall by 4.8% in 2009, but in CEE it's still expected to grow, albeit at a more moderate pace, by 4.8%.

Infrastructure remains the most solid part of the market, with volumes

actually expected to increase in 2009 by 0.4%. However, it's in the residential part of the business that most of the problems lie. Output in this segment is expected to fall by 13.3% across Europe in 2009 following a similar decline in 2008. 2010 demand is expected to fall by a further 1.7%. Even in CEE, the residential part of the market is weak, falling in 2009 by 3.1%, following an 11% increase in 2008.

The outlook for European cement consumption shows a similar dynamic to construction output. The overall figure of a decline of 6.2% in 2009, which follows a fall of 6.3% in 2008, is being driven by the weakness in Western Europe. CEE demand for cement is expected to grow by 3.3% in 2009.

Only two countries in Western Europe - Switzerland and Austria - are forecast to increase cement consumption in 2009. In percentage terms, the worst performers are Spain (down 19%), Norway (down 16%), Ireland (down 12%) and Finland (down 10%). In CEE, by contrast, Polish consumption of cement is expected to grow by 5%, driven largely by strong growth in infrastructure spending ahead of the Euro 2012 football championships, which the country is co-hosting with Ukraine.

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