STATE OF PLAY - FORECASTS FOR EUROPEAN CONSTRUCTION Michael Weingärtler michael.weingaertler@euroconstruct.org European Builders Confederation Annual Meeting 2014 20 June 2014 - Palermo, Italy

OVERVIEW Overall Trends in Construction Macro-economic Framework Construction Outlook by Sectors Housing Non-residential construction Civil Engineering

EUROCONSTRUCT NETWORK FI EUROPE (EC-19) Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Nether-lands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Czech & Slovak Republic, Hungary, Poland. BIG 5 Countries France, Germany, Italy, Spain, United Kingdom Northern Europe Norway, Sweden, Finland, Denmark, Ireland Smaller European Countries Austria, Belgium, Netherlands, Portugal, Switzerland Eastern Europe Czech Republic, Hungary, Slovak Republic, Poland NO SE DK IR UK NL PL DE BE CZ SK AT HU CH FR IT ES PT

But let‘s start with the recent macroeconomic trends and its impact on the construction industry.

DOUBLE DIP IN CONSTRUCTION Source: EUROCONSTRUCT (Oslo 6/2014).

2010 2011 2012 WHAT HAPPENED? (1) INCREASING WORLD TRADE (2) DYNAMIC EXPORTS (3) MACHINERY INVESTMENTS EUROPEAN PUBLIC DEBT CRISIS (4) CONSTRUCTION INVESTMENTS 2010 2011 2012

THREE STEPS OF ECONOMIC RECOVERY World Trade  Exports   Construction  Investments  Consumption Time lag 2-4 quarters 2-4 quarters 2008 2009 2010 2011 2012 2013 2014 GDP 0.3 – 4.1 2.2 1.8 – 0.2 0.2 1.7 Exports 1.4 – 11.2 10.5 6.2 2.5 1.3 4.1 Fixed Capital Investment – 0.9 – 12.0 0.6 2.1 – 2.3 – 1.7 3.1 Private Consumption –1.2 0.5 – 0.4 Public Consumption 2.3 0.9 0.0 0.7 Construction – 3.9 – 9.0 – 3.4 – 5.5 – 2.7 Source: EUROCONSTRUCT (OSLO 6/2014).

HOW WILL IT GO ON? Source: EUROCONSTRUCT (Oslo 6/2014).

EUROPEAN CONSTRUCTION 2014 Volume: construction output per capita in mill. Euro (horizontal axis) Activity: real annual average growth 2014 in % (vertical axis) low volume high volume average volume increasing activity increasing activity average growth average growth decreasing activity decreasing activity low volume high volume Source: EUROCONSTRUCT (Oslo 6/2014).

European Construction – A 1.30 bn Euro Market (2013) RENOVATION DOMINATES WESTERN CIVIL ENGINEERING & NON-RESIDENTIAL EASTERN EUROPE European Construction – A 1.30 bn Euro Market (2013) EC-15 EC-4 TOTAL CIVIL ENGINEERING 22 bill. € TOTAL CIVIL ENGINEERING 263 bill. € NEW HOUSING 218 bill. € NEW HOUSING 11 Mrd. € 18% 16% 21% 32% 16% NEW NON-RESIDENTIAL 196 bill. € 30% 45% 22% NEW NON-RESIDENTIAL 21 bill. € BUILDING RENOVATION 15 bill. € BUILDING RENOVATION 550 bill. € Source: EUROCONSTRUCT (Oslo 6/2014). – Western Europe: Belgium, Denmark, Germany, Finland, France, Ireland, Italy, Great Britain, Netherlands, Norway, Austria, Portugal, Sweden, Switzerland, Spain. Eastern Europe: Czech Republic, Hungary, Poland, Slovak Republic.

SLOW RECOVERY IN CONSTRUCTION gdp and construction output index 2010 = 100 without Poland Source: EUROCONSTRUCT (Oslo 6/2014. – Western Europe: Belgium, Denmark, Germany, Finland, France, Ireland, Italy, Great Britain, Netherlands, Norway, Austria, Portugal, Sweden, Switzerland, Spain. Eastern Europe: Czech Republic, Hungary, Poland, Slovak Republic.

SLOW RECOVERY IN CONSTRUCTION gdp and construction output index 2010 = 100 Source: EUROCONSTRUCT (Oslo, 2014). – Northern Europe: Denmark, Finland, Ireland, Norway, Sweden. Smaller Countries: Belgium, Netherlands, Austria, Portugal, Switzerland.

RECOVERY OF NEW HOUSING IN EUROPE housing output index 2013 = 100 NEW HOUSING TOTAL HOUSING RENOVATION Source: EUROCONSTRUCT (Oslo 6/2014) .

LONG TERM HOUSING IN EC-19 total housing output in billion Euro at 2013 prices – 25% + 6% Source: EUROCONSTRUCT (Oslo 6/2014).

BACK TO 2010 total housing output in billion Euro at 2013 prices Source: EUROCONSTRUCT (Oslo 6/2014).

TOTAL HOUSING IN BIG-5 COUNTRIES volume change in billion Euro Source: EUROCONSTRUCT (Oslo 6/2014) .

HOUSING TRENDS – NORTHERN EUROPE total housing output in billion Euro at 2013 prices – 28% + 16% Source: EUROCONSTRUCT (Oslo 6/2014). – Northern Europe: Denmark, Finland, Ireland, Norway, Sweden.

TOTAL HOUSING IN NORTHERN EUROPEAN COUNTRIES Volume change in billion Euro Source: EUROCONSTRUCT (Oslo 6/2014).

HOUSING TRENDS - Smaller Countries total housing output in billion Euro at 2012 prices – 11% + 4% Source: EUROCONSTRUCT (Oslo 6/2014). – Northern Europe: Denmark, Finland, Ireland, Norway, Sweden. Smaller Countries: Belgium, Netherlands, Austria, Portugal, Switzerland.

TOTAL HOUSING - SMALLER COUNTRIES volume change in billion Euro Source: EUROCONSTRUCT (Oslo 6/2014).

HOUSING TRENDS – EASTERN EUROPE total housing output in billion Euro at 2012 prices – 24% + 9% Source: EUROCONSTRUCT (6/2014). – Eastern Europe: Czech Republic, Hungary, Poland, Slovak Republic.

TOTAL HOUSING – EASTERN EUROPE volume change in billion Euro Source: EUROCONSTRUCT (Oslo 6/2014).

SIGNIFICANT GROWTH DIFFERENCES average housing permits per 1000 inhabitants 2013-2016 3.5 permits per 1,000 inhabitants 2 & less Portugal Spain Hungary 2 < 3 Netherlands Germany Slovakia Denmark UK, Italy Ireland 3 < 4 Sweden Czech Republic 4 < 5 Belgium Finland Poland 5 & more Austria Norway France Switzerland Source: EUROCONSTRUCT (Oslo 6/2014).

RENOVATION DOMINATES HOUSING OUTPUT IN WESTERN EUROPE share of new construction and renovation in european housing markets in 2013 in % New Housing Housing Renovation Source: EUROCONSTRUCT (Oslo 6/2014).

PUBLIC RENOVATION MEASURES AS REACTION TO THE LONG TERM ENERGY PRICE TREND ‘Oil-Crisis‘ Crude oil price trend 1960 – 2013 EU Public Debt Crisis World Financial Crisis 2003 vs 2012 +430% 2009/10 +30% 2004/05 +45% S: TECSON (www.tecson.de)

TOTAL HOUSING PRODUCTION FI average growth 2013-2016: 2.0% NO SE Western Europe: 2.0% Eastern Europe: 2.8% DK IR UK NL PL DE 4% and above BE CZ SK 2% to less than 4% AT HU CH 1% to less than 2% FR below 1% IT shrinking market PT ES Source: EUROCONSTRUCT (Oslo 6/2014) .

This brings us to non-residential construction.

MINOR RECOVERY IN EUROPEAN NON-RESIDENTIAL CONSTRUCTION non-residential construction output index 2013 = 100 Source: EUROCONSTRUCT (Oslo 6/2014).

BEST OUTLOOK: NEW INDUSTRIAL CONSTRUCTION new non-residential construction output index 2013 = 100 Source: EUROCONSTRUCT (Oslo 6/2014).

POOR NON-RESIDENTIAL PERFORMANCE gdp & non-residential construction Output index 2010 = 100 Poland, excluded Source: EUROCONSTRUCT (Oslo 6/2014). – Western Europe: Belgium, Denmark, Germany, Finland, France, Ireland, Italy, Great Britain, Netherlands, Norway, Austria, Portugal, Sweden, Switzerland, Spain. Eastern Europe: Czech Republic, Hungary, Poland, Slovak Republic.

BIG-5 EUROPEAN COUNTRIES MINOR GROWTH IN NON-RES. CONSTRUCTION new non-residential construction output index 2013=100 BIG-5 United Kingdom Germany Italy France Spain Source: EUROCONSTRUCT (Oslo 6/2014) .

NORTHERN COUNTRIES average growth 2013-2016: +2.6% new non-residential construction output index 2013=100 Denmark Finland Ireland Norway Sweden Source: EUROCONSTRUCT (Oslo 6/2014) .

SMALLER WESTERN EUROPEAN COUNTRIES average growth 2013-2016: +1.0% new non-residential construction output index 2013=100 Netherlands Portugal Austria Switzerland, Belgium Source: EUROCONSTRUCT (Oslo 6/2014).

CENTRAL EASTERN EUROPEAN COUNTRIES average growth 2013-2016: +2.5% new non-residential construction output index 2013=100 Poland Hungary Czech Republic Slovak Republic Source: EUROCONSTRUCT (Oslo 6/2014).

NON-RESIDENTIAL OUTLOOK FI average growth 2013-2016: 1.2% NO SE Western Europe: 1.1% Eastern Europe: 2.6% DK IR UK NL PL DE 3% and above BE CZ SK 1.2% to less than 3% AT HU FR CH 0.6% to less than 1.2% below 0.6% IT shrinking market ES PT Source: EUROCONSTRUCT (Oslo 6/2014).

CIVIL ENGINEERING OUTLOOK gdp and civil engineering output index 2010 = 100 Poland, excluded Source: EUROCONSTRUCT (Oslo 6/2014). – Western Europe: Belgium, Denmark, Germany, Finland, France, Ireland, Italy, Great Britain, Netherlands, Norway, Austria, Portugal, Sweden, Switzerland, Spain. Eastern Europe: Czech Republic, Hungary, Poland, Slovak Republic.

CIVIL ENGINEERING OUTLOOK gdp and civil engineering output index 2010 = 100 Source: EUROCONSTRUCT (Oslo 6/2014). – Northern Europe: Denmark, Finland, Ireland, Norway, Sweden. Smaller Countries: Belgium, Netherlands, Austria, Portugal, Switzerland.

ROAD SECTOR DOMINATES CE STRUCTURE IN CIVIL ENGINEERING PRODUCTION OUTPUT 2013 EC-19 EC-4 TELECOM & OTHER CE 2 bn. € TELECOM & OTHER CE 43 bn. € ROADS 84 bn. € ROADS 9 bn. € WATER 4 bn. € WATER 31 bn. € ENERGY 40 bn. € ENERGY 3 bn. € RAILWAY 42 bn. € RAILWAY 3 bn. € OTHER TRAFFIC 20 bn. € OTHER TRAFFIC 1 bn. € Source: EUROCONSTRUCT (Oslo, 6/2013).

ENERGY SECTOR AS GROWTH DRIVER total civil engineering output index 2010 = 100 Source: EUROCONSTRUCT (Oslo 6/2014).

CIVIL ENGINEERING OUTLOOK IN BIG-5 EUROPEAN COUNTRIES total civil engineering output index 2013 = 100 Source: EUROCONSTRUCT (Oslo 6/2014).

CIVIL ENGINEERING OUTLOOK FI average growth 2013-2016: 1.5% NO SE Western Europe: 1.3% Eastern Europe: 4.5% DK IR UK NL PL DE 4.2% and above BE CZ SK 2% to less than 4.2% AT HU CH FR 0.5% to less than 2% below 0.5% IT shrinking market ES PT Source: EUROCONSTRUCT (Oslo 6/2014).

SUMMARY Economic recovery is mainly driving European Housing Civil Engineering HIGHEST RISK SLOW AND UNSTABLE OVERALL ECONOMIC DEVELOPMENT