Analysts Predict Deeper Construction Recession

The construction sector will enter a worse recession this year than previously foreseen, an industry association has said.

Economic analysis by the Construction Products Association (CPA) predicts sector output will decline by 2.2 per cent in 2024.

It previously forecast a 0.3 per cent contraction for this year.

Beneath the overall figure in the latest forecast, some parts of the industry will fare even worse, with private housebuilding set to fall by 5 per cent, the CPA said.

While mortgage approvals and property transactions have begun rising from very low levels last year and the prospect of summer interest rate cuts has increased optimism, this is unlikely to translate into a rise in housebuilding until next year, according to the association’s analysis.

Contractors working in private housing repair, maintenance and improvement (RMI), can expect output to fall by 4 per cent as retrofit and solar panel work fails to offset the decline in large home improvement spending and a double-digit drop in planning approvals last year.

Commercial, refurbishment and fit-out companies continue to enjoy stronger levels of activity but overall commercial sector growth is not expected to turn positive until 2025, when large office towers and leisure projects that have been paused by developers are restarted.

HS2 and Hinkley Point C are driving high levels of activity in the infrastructure sector, which is set to pick up even more from 2025 as offshore wind, National Grid upgrades and airport expansion jobs increase.

CPA head of construction research Rebecca Larkin said: “Almost all sectors of construction had a bad start to the year with persistent rainfall delaying work on site, especially outdoor work.

“While we may see a degree of catch-up activity as the weather improves, smaller sites are likely to see work simply pushed back due to capacity constraints.”

She said the two largest sub-sectors, private new-build and private housing RMI, will drag overall activity down.

The CPA predicts a broader economic recovery will enable a return to growth across construction in 2025, of 2.1 per cent overall, and a 3.6 per cent rise in output in 2026.

Larkin acknowledged there is more uncertainty around the 2026 figure, especially given the possibility of a new government being elected this year.

“The impact this could have on public sector spending plans and the longer-term delivery of infrastructure and public sector projects present the longer-term opportunities – and risks – for construction,” she said.

Earlier this month, S&P Global revealed that its Purchasing Managers’ Index found construction activity increased in March, the first month of growth it has recorded since August 2023.

The Office for National Statistics found construction output increased by 1.1 per cent in January, but fell by 1.9 per cent in February.

Source: Construction News

Comment: "If only there was a way to foresee this recession happening."

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