The austerity fragile construction
The stock performance does not lie. Since the beginning of the year, the Euronext Building & Construction fell 18%. Values that balance the index are battered stock market. Wednesday again, the index meant the worst performing sector in Europe. The Irish manufacturer CRH, which warned on its sales in 2010, lost nearly 9% while the French Lafarge realized the worst performance of the ACC. It also loses 28.95% since January 1. Over the same period, Saint Gobain coward 17.15%, while 11.24% abandons Vinci.
The Irish group has yet taken a cold snap in stating that its sales in 2010 would be affected more severely than expected by the consequences of fiscal consolidation in the euro area and slowing the pace of recovery in USA.
The news did not surprise analysts."The fiscal crisis has not improved the situation of the sector because governments are pushing the major works to reduce the growing deficit," said Harry Sebag, an analyst at Saxo Bank. The financial crisis has also hit the industry particularly since the latter is highly dependent on the banks with which it finances a large majority of buildings.
The figures for real estate in the U.S. are also very revealing. In June, there were only 300,000 new home sales on a new year while the consensus was expecting about 424,000 sales.
Outlook not reassuring
For the future, the industry should be very cautious. "We are in a context of sluggish growth and unemployment prevails with a high public and private debt.Certainly the infrastructure programs of national recovery plans may lead us to believe a recovery in the sector, however, this growth drivers must be qualified with the recently introduced austerity policies, "said Harry Sebag. For example, France had planned to inject four billion euros in the construction sector in 2009. But only 2.5 billion have been invested and a slowdown in public works is possible for the remaining 1.5 billion.
"Businesses have already significantly impacted margins and cut prices to gain market share over the weaker euro and higher commodity prices, driven by demand from emerging economies, clouding the outlook for the sector , "says the analyst.
There is no question of a collapse."The activity is still declining, but remained stable for the rest of the year is possible if the growth recovery by 2011," warns Harry Sebag.
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