Western Europe experienced a severe financial crisis during 2008-2009, with economic activity in the region contracting sharply. Reflecting ongoing weakness in the region, real gross domestic product (GDP) has yet to rise above the pre-2008 level, with ongoing debt problems in most countries constraining growth, particularly in Greece, Ireland, Spain and Portugal.

Budget deficits and government debt in several countries in the region are at alarming levels owing to the sluggish recovery from the economic crisis, which has led to record high unemployment levels. Public and private investment for new projects has declined significantly in the recent past. The construction industry recorded a compound annual growth rate (CAGR) of -5.94 per cent during the review period, mirroring the subdued economic environment.

Infrastructure Investment

Governments invested heavily in infrastructure development before the economic crisis. While spending has declined significantly, it still remains high, with infrastructure construction accounting for the second-largest share of the overall construction market in the region in 2012. The Netherlands and Belgium are looking to consolidate their positions as major logistics destinations in Europe by investing in the further development of intermodal transport. Large investments in rail infrastructure development in most western European countries – Germany, Spain, Sweden, the Netherlands, Belgium and France in particular – will see rail infrastructure construction record the fastest growth of all infrastructure construction categories over the forecast period. All members of the region are committed to increasing the share of renewable energy in total energy consumption and the energy and communication buildings category is set to receive healthy investment.

Construction activity over 2013 and 2014 is expected to move at a very sluggish pace as austerity measures adopted by different countries to control the rising level of public debt are expected to hamper growth in all construction sectors. Of the few positive factors, inflation in the region has been fairly stable and nearer to central banks’ targets of two per cent. High unemployment rates in the region have also kept labor costs under control. Relative stability in input costs has also provided some respite for the construction industry. Timetric expects the western European construction industry output to value USD 2tn in 2017 and record a CAGR of 1.79 per cent over the forecast period.

Construction Industry Analysis

The western European construction industry valued at USD 1.9tn in 2012, recording a CAGR of -5.94 per cent during the review period. All construction markets registered negative growth in this period, largely as a result of the slowing down of the region’s economies following the financial crisis and the region’s debt troubles.

Infrastructure construction accounted for 22.3 per cent of the overall construction industry output in 2012. The market valued USD 414.3bn in 2012 and recorded a CAGR of -6.21 per cent during the review period. Countries across the region have invested heavily in infrastructure construction, and while investment has slowed since the financial crisis, it remains high. The Netherlands and Belgium are investing in further improving their infrastructure to maintain their positions as major logistics destinations in Europe. Governments across the region have implemented schemes, such as the National Infrastructure Plan (NIP) in the UK and the Strategic Infrastructures and Transport Plan (PEIT) in Spain, to support the infrastructure market. Large investments in rail infrastructure development in most Western European countries – Germany, Spain, Sweden, the Netherlands, Belgium and France in particular – will see rail infrastructure construction record the fastest growth of all infrastructure construction categories over the forecast period. All countries in the region are also committed to increasing the share of renewable energy in total energy consumption, and the category is set to receive healthy support. Timetric expects infrastructure construction to be the fastest-growing construction market over the forecast period with a CAGR of 2.14 per cent.

Infrastructure construction market analysis by country The infrastructure construction market in western Europe valued USD 414.3bn in 2012 with a CAGR of -6.2 per cent during the review period. The French infrastructure construction market valued USD 75.1bn in 2012, and with an 18.1 per cent share it was the largest infrastructure market in Western Europe. The French government aims to curb public spending to reduce the country’s budget deficit to 4.4 per cent of GDP in 2012 and three per cent of GDP in 2013. The negative effects of this development are expected to be offset by growing investments in infrastructure by alternative sources of financing such as infrastructure-focused private equity and pension funds, and public private partnerships (PPPs). The French infrastructure market is expected to remain the largest infrastructure construction market in Western Europe, valuing USD 85.4bn in 2017 after recording a CAGR of 2.59 per cent over the forecast period. The Netherlands and Belgium are looking to consolidate their positions as major logistics destinations in Europe by investing in the further development of intermodal transport. Large investments in rail infrastructure development in most western European countries, Germany, Spain, Sweden, the Netherlands, Belgium and France in particular, will see rail infrastructure construction record the fastest growth of all infrastructure construction categories over the forecast period.

All members of the region are committed to increasing the share of renewable energy in total energy consumption, and the category is set to receive healthy investment. Timetric expects the infrastructure construction market to record a CAGR of 2.14 per cent over the forecast period.

The French government is struggling to reduce public debt and the economy is forecast to contract over 2013. According to the budget announced in October 2012, there will be an average 15.6 per cent reduction in investment across all transport modes. The rail infrastructure budget is expected to fall by 26 per cent from USD 6.6bn in 2012 to USD 4.9bn in 2013, but will still remain the government’s top priority with a 50 per cent share of the total budget. Rail infrastructure is receiving significant investments, as construction company Eiffage secured a EUR 3.4bn (USD 4.52bn) contract to build a 214km rail line between Le Mans and Rennes. As a result of this and other rail projects, the rail infrastructure category is projected to be the fastest-growing infrastructure category in France after recording a CAGR of 3.67 per cent over the forecast period. Preparation for the UEFA Euro 2016 football tournament is also anticipated to support investment in France’s infrastructure construction market. A sum of EUR 1.7bn (USD 2.26bn) will be spent on repairing and refurbishing the 12 stadiums that will host the matches.

In the French energy segment, investments will be supported by the state-owned Electricité de France (EDF). Additional private participation is expected to continue to increase in the renewable sector, especially in solar power. France needs to increase the share of renewable energy in its gross final consumption of energy from 13 per cent in 2012 to 23 per cent in 2020. While renewable energy investment in France fell by 35 per cent to USD 4.3bn in 2012, over 90 per cent of the total investment was directed toward solar energy, which recorded an increase of 900MW in capacity. Meanwhile, wind energy capacity increased by 700MW in 2012. The energy and communications infrastructure category is projected to record a CAGR of 3.13 per cent over the forecast period and value USD 9.2bn in 2017.

Spain

With a 26.3 per cent share in western Europe, Spain was the largest infrastructure construction market in 2008. While investments still remain high, they have declined significantly. Spain’s infrastructure construction market recorded a CAGR of -17.40 per cent during the review period and accounted for 15.8 per cent of the western European infrastructure construction market in 2012, the second-largest behind France which accounted for an 18.1 per cent share. Spain has invested heavily in infrastructure over the last two decades. In 2004, the Spanish Ministry of Development introduced the Strategic Infrastructures and Transport Plan (PEIT) 2005-2020, focusing heavily on enhancing rail, road and air infrastructure. The PEIT aims to develop a high-performance rail network across the country. Spain now has the longest high-speed railway network in Europe and the second largest in the world, after China.

There has been some criticism of the high-speed rail network, with opponents claiming that it runs around Madrid and not on commercially active routes.

A number of international airports that have been constructed remain unused and Spain now has double the volume of international airports of Germany. Rail infrastructure is projected to be the fastest-growing category in the Spanish infrastructure market with a forecast CAGR of 1.54 per cent.

United Kingdom

In the UK, the government launched the National Infrastructure Plan (NIP) in 2010, in a bid to create jobs and boost the economy. The plan was updated in 2011 and sets out a pipeline of 500 infrastructure projects to be implemented across the UK. An estimated investment of GBP 250bn (USD 401bn) will be needed to implement the NIP. Major investments will be made in highways, railways, nuclear, offshore wind farms and broadband networks. The Olympic site in London is to be converted into a business and residential area with around 40,000 homes built in the vicinity. This will relieve pressure on local housing and provide much-needed employment opportunities. This phase of development is expected to take place over two decades and will boost the construction industry. The infrastructure construction market in the UK is projected to value USD 28.7bn in 2017 after recording a CAGR of 1.59 per cent over the forecast period.

Market Dynamics

Within the western European infrastructure construction market, road infrastructure was the largest category in 2012, accounting for 30.6 per cent of the market value. Road infrastructure also recorded the largest decline during the review period with a CAGR of -7.27 per cent. Rail infrastructure is expected to be the fastest-growing infrastructure construction category over the forecast period with a projected CAGR of 2.61 per cent