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UK construction is bouncing back in 2006 and will be even stronger in 2007/8, writes Roxane McMeeken. The key to the recovery is infrastructure projects, including works on the Olympic Park. This contrasts with Western Europe as a whole, where a decline in civil engineering work is contributing to a slowdown in construction growth. Meanwhile, Eastern Europe is set for accelerated growth and, again, civils are boosting rates of output.

In the UK, construction output is set to grow by 2.9% this year, according to new research from forecasting group Experian Business Strategies. The pace will accelerate in the next two years, to 3.6% in 2007 and 3.7% in 2008.

James Hastings of Experian said infrastructure was making a comeback in the UK, having declined by nearly 25% in the past three years. The recovery was put down to works on the Olympic Park site scheduled to start during the year, two sizeable ports projects in the east of England and several large roads schemes. Infrastructure works are expected to contribute to 5% output growth this year, rising to 7% in 2007 and 8% in 2008.

But Hastings warned that the forecasted growth was at the mercy of rising oil prices: 鈥淚nfrastructure is relatively material intensive, making it particularly susceptible to higher oil prices.鈥�

He added that the UK non-residential public sector would continue to be subdued but the housing market was picking up.

The numbers contrast with 2005 when a fall in public spending brought to an end 11 years of growth with a decline in construction output of 1.1%. They also contrast with Experian鈥檚 predictions for Western Europe generally, which appears to be set for a slowdown in growth in 2007.

While construction output will rise 2.6% this year, it is forecast to falter during the following year due to a drop in new residential activity.

Civil engineering output growth in Western Europe will slow down until 2008, while new non-residential construction growth will be in the range of 2-2.5%.

Construction in Western Europe is mainly concerned with maintaining, extending and improving existing infrastructure

James Hastings, Experian Business Strategies

However, the market in Eastern Europe will see increased construction activity in the next two years. Output will increase by 7-8% during 2006-2008.

The growth will be led by countries such as Hungary and Poland, which have attracted investment since joining the EU.

Hastings said: 鈥淭he Western European construction market is mature and investment from both public and private sources has been abundant. Consequently, construction in Western Europe is mainly concerned with maintaining, extending and improving existing infrastructure. By contrast, construction in Eastern Europe is focused on installing the built environment necessary to facilitate new economic development.鈥�

Residential was found to be the largest element of construction in Western Europe. In 2005 it was valued at 鈧�603bn, 48% of total construction output and 5.6% of total GDP in the region.

Experian said this contrasted sharply with Eastern Europe. In most Western countries, housing represents 50% of total construction, with Ireland and Germany standing out at 66% and 58% respectively. In the Eastern European countries however, housing accounts for only 25% of total construction activity.

In non-residential construction throughout Europe, industrial buildings were found to be the largest market segment, followed by commercial buildings. Around 80% of demand came from the private sector, Experian said. The firm鈥檚 forecasts showed small improvements in the European non-residential market, with overall growth between 2.0 to 2.5% in 2006, 2007 and 2008.

The civil engineering market represents one-fifth of all construction investment, Experian found. Within it, transport makes the largest contribution, with particular growth expected in roads building, driven by demand in Central and Eastern Europe. New construction work is expected to expand significantly, registering growth rates of 4% a year until 2008.

Within the non-residential market, industrial buildings are forecast to rebound only slightly from 2006 onwards, while health and education are expected to remain strong. The report added that a rebound in office construction would depend on increasing jobs in the service sector and the commercial sector was expecting to benefit from a restart in household consumption.