EC construction head Vincente Leoz Argüelles believes the situation for the construction sector has not yet stabilized Courtesy of the EC

Andrew Kureth: Where does Poland fit in when it comes to the construction industry in the European Union?

Vincente Leoz Argüelles: Poland represented 2.5 percent of the total production value of the construction industry in the EU-27 during the year 2008. After the outstanding growth rates of 13-17 percent reported for the period from 2006-2008, the construction industry in Poland has certainly been affected by the financial and economic crisis, as in many other EU countries. However, forecasts indicate that the production output will still grow in 2009, although at a lower rate – on the order of four to six percent – before growing again at higher rates in 2010-2011.

Investments in infrastructure will be supported by fast absorption of EU funding and the organization of the Euro 2012 soccer championship, two factors of the overall positive development of the construction industry in Poland. In contrast, it appears that the residential market will suffer from the recent inflation in construction prices and current constraints on access to credit. As far as non-residential construction is concerned, there might be some strains on the commercial market, since supply appears to have been in excess during the past [few] years.

The Polish construction industry employed about 590,000 people in 2009, of which 30 percent were self-employed workers. This situation is quite comparable to many EU countries. Due to the general economic slowdown, it is expected that employment in construction will shrink and that remuneration conditions will be less attractive than in recent years.

The construction industry was one of the hardest-hit due to the economic crisis. What is the EU doing to help?

The EU, member states and central banks have first taken a series of rescue measures to support the financial market. Recovery in financial markets was a precondition to avoiding a more significant impact on recovery of the real economy.

In December 2008, the EU and the member states decided on a coordinated fiscal stimulus equivalent to 1.5 percent of the EU-27 GDP, which was E200 billion, to boost the real economy. The objective of this EU economic recovery plan was not only to contribute to short-term recovery efforts, but also to tackle long-run strategic challenges, such as R&D, innovation, education, infrastructure and a low-carbon economy. The plan foresees additional interventions from the European Investment Bank [EIB] and by the European Bank for Reconstruction and Development [EBRD] to generate a positive leverage of additional private investments.

A number of the measures supported by the EU will have an impact on the construction sector. For example, the EU has brought forward existing funds for Trans-European Transport projects by launching a call for proposals of E0.5 billion in 2009. The EIB will provide additional lending of E6 billion per year for the EU energy and climate package. The EBRD will also give additional support for energy efficiency and climate change mitigation for municipalities and other infrastructure services. The EU Structural Funds regulations have been amended to support investment in energy efficiency and renewable energies in the housing sector throughout the EU-27.

The Commission will co-finance a public-private partnership called Energy Efficient Buildings for implementing a research agenda and complementary demand-side innovation measures dealing with public procurement, regulations, standardization and functioning of the market. This partnership is estimated to take into account some E1 billion.

Do you see any signs of recovery in the construction industry? What member states are seeing these signs and which are still lagging?

The most recent data confirm the [presence of a] significant downturn in the construction sector, where activity in the EU-27 in July was still 11.1 percent below its level a year ago. Building construction was mostly affected [-13.7 percent] mainly due to the decrease in private investment in the residential sector. In contrast, civil engineering work, continuing the growth trend from the second quarter [3.8 percent], rose in July by 0.3 percent compared with a year earlier, showing limited evidence of the impact of fiscal measures.

Almost all EU countries are concerned by the worsening of the economic situation. On an annual basis, among the member states for which data are available for Q2 2009, construction output rose only in the Czech Republic [1.2 percent], Germany [3.0 percent], Greece [6.0 percent], Malta [0.3 percent] and Poland [0.4 percent]. The largest decreases were registered in the Baltic countries, Slovenia, Finland, Romania, Denmark, the UK, Italy and Spain. It should also be noted that the situation in some countries is exacerbated by the bursting of housing “bubbles.”

There are numerous uncertainties surrounding the forecasts for the near future, since the situation in the sector has not stabilized. Although the numerous financial and fiscal measures related to the construction sector seem to have influenced output, it remains difficult to assess the timing of future policy measures and the extent to which the economic slowdown will result in a wider re-structuring of the sector.

What is the EC doing in order to ensure high standards of construction, especially in new member states?

One of our objectives is to ensure that reliable information is presented in relation to the performance of construction products with the view of preventing obstacles to their commercialization in the internal market. This is achieved by providing – mainly in standards – a common technical language to be used not only by manufacturers, but also by public authorities when defining their requirements on construction work, directly or indirectly influencing the demands placed on the products to be used.

From the EC’s point of view, what is the most pressing issue facing the construction industry?

Construction is a key sector when the EU and member states are addressing the main societal challenges of the future, as well as the regeneration of many urban areas of Europe and the realization of major trans-European infrastructure work. This stems not only from the sector being a major economic actor in itself but also from being a “provider” of facilities linked to almost all other economic and social activities [infrastructure, housing, etc]. Still, it has traditionally been affected by limited productivity development and relatively low uptake of innovations and new technologies.

Construction uses more raw materials than any other sector. In addition, buildings account for the largest share of the total EU final energy consumption [42 percent] and produce about 35 percent of all greenhouse emissions. The potential for a substantial increase in investments for natural resources management and environmental protection is to be highlighted: this especially goes for renovating and refurbishing existing buildings. The efforts and the commitment of the whole construction sector will thus prove instrumental in achieving the targets on climate change, energy efficiency and sustainability.

Although considerable technological progress has already occurred for several years, the market has generally not been able to realize investments to a satisfactory level in spite of the very high level of return. This underlines the importance of having in place an appropriate policy framework, conducive to an efficient market and creating pertinent incentives.