Construction output is expected to shrink during both this year and next according to the latest joint Trade Survey Report from the Construction Products Association and the Construction Confederation, as the economic slowdown coupled with the rising prices of energy and raw materials begins to bite.

After 15 years of almost unbroken growth until the downturn at the beginning of this year, the second quarter of 2008 has worsened still further and 2007’s GDP growth of 3.1% looks set to halve during 2008.

Troubles in credit availability have already had a considerable impact on construction this year and the problems within housing are now spreading into other sectors.

On the manufacturing side, there is a clear distinction between heavy and light side operations. The heavy side, generally used in the early part of construction is significantly affected by the economic slowdown, whilst light side manufacturers have so far remained relatively immune to the slowdown.

-- Advertisement --

The heavy side manufacturers have now experienced significant falls in sales volumes for three consecutive quarters although 42% of light side firms have still enjoyed growth in sales and 38% of firms have reported an increase of more than 5% in sales volumes.

Speaking about the survey, Noble Francis, Economics Policy Development Director at the Construction Products Association said: "The further reduction this quarter, although predictable is of great concern for many parts of the industry. Increased energy costs and high demand for materials from countries such as China and India has led to consistent rises in material prices, which in turn is leading to a reduction in profit margins. Output is definitely falling in the private sector therefore it is essential that government spending is not significantly cut."

Stephen Ratcliffe, Chief Executive of the Construction Confederation added: "Clearly the chill wind that has ripped into house building is beginning to blow through other sectors in the industry and contractors are reporting falls in output. Maintenance of the public sector investment programme is increasingly important for the well-being of construction.

"The other serious business challenge facing the industry is the continued rise in building costs driven by higher energy and raw material prices. With tender prices and traditionally narrow margins being squeezed even further, the increased costs cannot be absorbed by contractors indefinitely. It is inevitable that some of these increased costs will be passed on to clients."

(CD/JM)