Regional Analysis 2020 Europe

Regional Analysis 2020 Europe

In Europe, the public health impacts of COVID-19 have been significant, and the resulting lockdowns have seen economic activity plummet.

12%
EU contraction in Q2
-0.2%
Inflation in August
51.6
PMI in the eurozone in August

Europe Market Review

As we near the final quarter of 2020 and begin to realise the ‘new normal’ of COVID-19, Giles Heather, Associate Director at Linesight, reviews the European economic and construction industry performances to date, and what we can expect in the coming months. 

Economic performance

COVID has hit Europe particularly hard, as a number of countries have struggled to suppress and control the virus. The public health impacts have been significant, and the resulting lockdowns have seen economic activity plummet. Eurostat announced that the EU had recorded an 11.9% contraction in Q2, compared to 12.1% in the eurozone. Spain, Portugal and France had the steepest declines, at 18.5%, 14.1% and 13.8% respectively. 

Year-on-year, the quarterly figures were down 15% in the eurozone and 14.4% in the EU, marking the sharpest declines since time series started in 1995.

Although many European countries looked to be making a recovery in July, as lockdown and restrictions were lifted, a marked slowdown was seen in August as COVID cases rose again in some countries, with the eurozone PMI dropping from 54.9 to 51.6.

Although the European Central Bank acted quickly upon the onset of the virus, with significant stimuli put in place to prop up the regional economy, it now appears that even more stimuli will be required from the ECB to tackle the disinflationary impact.

Inflation in the eurozone was negative in August for the first time in over four years, with a figure of -0.2% recorded across the 19 countries, well below the ECB’s target of 2%. While it is hoped that this is relatively temporary and that a rebound is in the near future, Brexit remains a significant risk, in addition to the pandemic.

 

Labour force

The most recent figures available indicate that employment in the EU hit 12.8 million in July, an increase of 336,000 (2.6%) on the previous month. That brought the seasonally-adjusted unemployment rate from 7.1% in June to 7.2% in July, with figures of 7.7% and 7.9% respectively for the eurozone.

 

Construction 

The impact of COVID-19 on construction in Europe has been severe, albeit difficult to draw too many broad conclusions given the diversity across the region and the varying performances. 

The most recent Eurostat figures show a month-on-month increase of 2.9% in construction production for the EU in June, down 5.8% on the same period in the previous year. This is still just 93.3% of the level of activity recorded in February, despite the recent growth. Building construction was up 3.2% in June compared to the previous month, compared with 1.8% for civil engineering. Overall, the general consensus is construction output in Europe in 2020 will be down 20% on 2019 figures, and down between 10%-15% in 2021, again compared to 2019 figures.

It is worth comparing the current crisis to the previous global downturn, in which the index for total construction in the EU declined by 6.9 points in the February to April 2008 period, followed by five years of a general downward trend (despite occasional increases), with a total fall of approximately 33 points. Although there was a marked recovery thereafter, it had not hit the former peak of 128.1 points since. Between February and April 2020, however, the construction index had dropped by almost 29 points in the EU.

Overall, the RICS Europe Construction Monitor points to a challenging near-term backdrop for the industry. The construction activity index for the region stood at -25 in Q2, and unsurprisingly given the abovementioned economic performance, Spain and France were amongst the worst performers. 

 

Europe construction output vs. real GDP

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Summary

Overall, COVID-19 has undoubtedly taken its toll on Europe, on both the economy and the construction industry, with many European countries hit hard by the pandemic. While some are faring better than others, the outlook for the near future is subdued.  

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