Private sector 'won't save industry from double dip'

Industry leaders have warned that a pick-up in private sector work will not prevent the double-dip recession forecast by the Construction Products Association this week.

The CPA, which publishes industry forecasts every quarter, predicts that construction will be the first major sector to return to recession. It says that growth will turn negative this year, and will shrink 0.8% next (see charts, right).

Michael Ankers, chief executive of the CPA, said the industry’s only saviour would be strong private sector growth, but he pointed out that figures from the Office for National Statistics, published last week, showed that new construction orders fell from 13,482 in the first quarter to 11,606 in the second, with private housing falling 24% and commercial work falling 7%.

There is a desperate need for some confidence in the economy

Paul Sheffield, Kier

Industry bosses including Paul Sheffield, chief executive of Kier, said the private sector as a whole would not return quickly enough and “certainly not the commercial part of the market. There is a desperate need for some confidence in the economy”.

Martin Smout, chief executive of contractor GB Building, said: “You’d have to ask the banks if there will be enough private work going around, as it’s bank lending that will dictate it.

Credit is easing, but the banks that are willing to lend are driving a hard bargain. Trying to get some hotel schemes we’re involved with going is an art form and a science.”

Bob Rendell, chief executive of Leadbitter, said 2012 would be the hardest year for bigger contractors. “I don’t believe the private sector can pick up quickly enough to compensate for public spending cuts so you won’t see a recovery happening until 2013/14,” he said.

The contractors’ comments were echoed by Mark Farmer, head of private residential and commercial at EC Harris. He said: “In the past six to 12 months there has been a recovery in residential and commercial, but it’s fragile and localised to London. Out of London the market is weak and a lot of contractors and subcontractors are going to be extremely hungry for work.”

Contractors and subcontractors are going to be extremely hungry for work

Mark Farmer, EC Harris

Robin Hardy, an analyst at KBC Peel Hunt, said changes to the nature of the housebuilding market meant it was unable to rescue the rest of the rest of the industry. “Housebuilding is roughly half the size it was so it’s difficult to see how it would be a factor in turning the industry around.

“Also, the major housebuilders don’t have any aspiration to build lots more homes. They’re talking about not doing a great deal in 2011 because they want to reduce costs and improve margins, rather than grow volume. They have no aspiration to create a lot more work.”

The CPA’s forecast said the bounce-back during the first six months of this year was driven by the previous government’s fiscal stimulus, a slight housing recovery and some major projects starting before the general election.

But Ankers said it was “not the basis for a long-term recovery” and that the the industry would slip backwards in the second half of 2010.

He said: “Although we can see the prospects for a pick-up in output in 2012 and the following two years, this recovery is going to be slow and holdback a more rapid growth in the wider economy.

“Even by 2014, output in the industry will not even have recovered to the levels it experienced in 2003.”