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Eurozone Construction Data Improves

James Boston
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Eurozone Construction Data Improves

Eurozone Construction Output figures for the month of April have just been released by Eurostat. The month on month, seasonally adjusted number is now reading at 0.8% compared to the -0.6% experienced in March. Year on year, on a week day adjusted basis, this metric is currently 8.0%, in comparison it was reported at 5.2% in March.

Today’s data will be welcomed. A slow down in the construction sector has been particularly evident in the Eurozone during the latter half of the first quarter of this year. This should not surprise too much given the fragile nature of the bloc’s recovery but concern is mounting as the stronger economies, such as Germany, begin to report a softening in their construction sectors.

The construction sector appeared to be in good shape during the past couple of years as an element of pent up demand was released on the market, this however is now tapering off and the sector, across the Eurozone, is realising that it is suffering from under investment. The sector is capital intensive and depends heavily on leverage, in the current tight liquidity environment there is a difficulty in private enterprise obtaining the necessary financing for anything beyond small to medium scale projects.

There is an opportunity now to increase public infrastructural investment, this has two obvious benefits. Firstly, it contributes to the foundations of longer term growth stability. Secondly, construction relies heavily on labour and this would have a positive impact on the Eurozones elevated unemployment levels.

Austerity however has caused the cancellation of many capital projects by hard pressed Eurozone governments. Cheap bond market financing, thanks largely to the European Central Bank, now provides many of these shelved projects with a positive ROI. There is good debt and there is bad debt. Low risk, high return project finance is good debt and Eurozone member state governments now have an opportunity to revisit some previously cancelled infrastructural development projects.

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