ECA - Presentation 2012 - The Economy, an Update

Dr Noble Francis CPA

Construction Industry Forecasts (2012-16) Dr Noble Francis Construction Products Association

Current & Near-term Economic Situation Construction Industry Forecasts (2012-16)

Economic Recovery and all that… • Recession is back… • Manufacturing and construction both back in recession… again • Largest fall in RHDI in 30 years

So what is the Government doing? • Announced higher spending in infrastructure in November… but doesn’t kick in till 2013/14 • Government capital investment still falling from £62 billion to £47 billion in three years

So what is the Bank of England doing? • Well, inflation is slowing… but not as much as they expect • Increased Quantitative Easing once again… but is it any use? • Interest rates are very low and aren’t expected to go higher…

Economic Forecasts? • Household incomes to fall this year with inflation still higher than wage growth • Economic activity flatlining this year • Key risk obviously Euro Zone uncertainty, more from Greece and Spain than other economies…

So where is construction going? Construction Industry Forecasts (2012-16)

Construction – Near-term falls then Recovery Post 2014 • Contraction in 2012 • Broadly flat in 2013 • ‘Real’ recovery only in 2 nd half of 2013 & then 2014 -2.7% -13.4% 8.1% 2.4% -2.9% 0.0% 3.4% 4.8% 4.6% -100 -80 -60 -40 -20 0 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Private Housing – Growth Throughout the Forecast! • Large house builders are quite happy • High margins, raising book value of land, marginally raising units • SMEs still affected by lack of lending & planning issues -47% -24% 27% -3% 5% 11% 12% 13% 11% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 2007 2008 2009 2010 2011 (e) 2012 (f) 2013 (f) 2014 (p) 2015 (p) 2016 (p) Nu mb er of H ou sin g St art s

Education – Falling from Historic Highs… • Capital Expenditure: £7.3bn in 2010/11 £3.3bn in 2013/14 • £1.2bn announced in November • 2 nd delay to £2bn PFI PSBP work 2.4% 4.1% 20.5% -0.7% -17.1% -11.3% -4.9% 2.5% 3.0% -100 -80 -60 -40 -20 0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Health – Also Falling from Historic Highs… • Cycle of hospitals in the 2000s • Capital expenditure not falling (!) but… • Switched to I.T. and focus more on essential repairs and maintenance 47.3% .3% -14.7% -0.8% -24.6% -13.5% -6.8% -2.4% 1.0% 3.5% -100 -80 -60 -40 -20 0 0 1,000 2,000 3,000 4,000 5,000 6,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Offices – Work in London but its slowing… • Lost half the market between 2007 & 2010 • London: Principal Place & Pinnacle • Still surfeit of office space outside London & South East -3.8% -36.2% -15.4% 3.1% 0.0% 2.0% 6.5% 7.6% 5.6% -100 -80 -60 -40 -20 0 0 2,000 4,000 6,000 8,000 10,000 12,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Retail – Slow recovery… • Lost ¼ of the market between 2007 & 2010 • Supermarkets driving recovery but… • Long-term negative trend due to growth in internet sales -3.3% -23.0% 0.7% 4.6% 2.7% 3.3% 3.9% 4.6% 4.5% -100 -80 -60 -40 -20 0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Factories – Still subdued • 40% fall in just 2 years • Domestic demand subdued so what about exports? • BRIC & CIVET countries? -14.2% -29.0% 5.9% -13.5% 2.0% 5.0% 5.0% 5.0% 5.3% -100 -80 -60 -40 -20 0 0 500 1,000 1,500 2,000 2,500 3,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Warehouses – Recovering • Lost over half the market in 2008 & 2009 • Recovery expected each year up to 2016 • Growth driven by economic recovery and shift towards internet shopping -34.3% -31.7% 11.0% -7.2% 1.7% 4.0% 6.0% 7.0% 8.0% -100 -80 -60 -40 -20 0 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ M illi on

Rail – Great Opportunities • Network Rail has fixed spending up to 2014 • Additionally, Crossrail, largest construction project in Europe • Post-2014, expect funding cuts… but won’t impact on work until 2016 7.9% 40.6% 33.3% 28.8% 21.4% 16.7% 10.4% 0.0% -10.0% -100 -80 -60 -40 -20 0 0 1,000 2,000 3,000 4,000 5,000 6,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Energy – More Specialised but More Opportunities • Near-term work from decommisioning • Main works on Hinkley in 2013, Wyfla in 2014 & Sizewell in 2015 • Renewables – onshore & offshore wind -0.2% -4.3% 20.4% 43.8% 18.3% 19.6% 30.0% 32.0% 12.0% -100 -80 -60 -40 -20 0 0 1,000 2,000 3,000 4,000 5,000 6,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

Private Housing RM&I – Growth Ahead but Green Deal? • 2012 – CERT boosting sector but subdued consumer spending • Economic growth driving growth from next year • What about Green Deal? 1.0% -12.4% 6.3% 0.2% 0.7% 2.6% 3.4% 4.3% 4.3% -100 -80 -60 -40 -20 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 2008 2009 2010 2011 2012 (e) 2013 (f) 2014 (f) 2015 (p) 2016 (p) £ Mil lion

So What Does it Mean Overall? £14.0 £4.4 £12.5 £24.3 £3.3 £13.0 £26.4 £11.1 £107.0 £0 £2 0 £4 0 £6 0 £8 0 £1 00 £1 20 -8 -6 -4 -2 0 2 4 6 Private Housing Public Housing Public Non- housing Commercial Industrial Infrastructure Private R&M Public R&M Total Ch an ge 20 11 -1 6 (£ b ill io n) Sector Value in 2011 (£ Million)

Published: 5 August 2013 Category: Magazines and newsletters

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