Uncertainty over EU referendum a 'risk factor' for 2016 growth, says CPA
The Construction Products Association’s latest forecast for 2016 has been trimmed to 3.6% compared to the autumn 2015 forecast of 3.8% – with the added proviso that growth could be compromised by uncertainty leading up to the EU referendum.
Along with the impact of skills shortages and weakening global economic growth, the CPA’s economics director, Noble Francis, told Construction Manager that the possibility of investment decisions being put on hold ahead of the referendum was a risk factor in delivering output growth at the current forecast rate.
“We’re highlighting these three factors as risks around the forecast, they’re not built in to the forecast,” said Noble. “The impact of the EU referendum is likely to be in the next six to nine months, where we’re likely to see an impact on confidence, investment and spending – similar to the effect we saw before the Scottish referendum when projects in the system went on hold.
“We’ve already seen a little bit of a slowdown in commercial new orders figures [from the ONS] in the third quarter of 2015, and we’ve also seen a little bit of a slowdown in the Markit/CIPS figures, and we’re likely to see uncertainty depress consumer spending, and infrastructure investment and commercial projects.”
"The impact of the EU referendum is likely to be in the next six to nine months, where we're likely to see an impact on confidence, investment and spending – similar to the effect we saw before the Scottish referendum when projects in the system went on hold."
Noble Francis, CPA
However, Francis stressed that 3.6% was still a positive forecast, and would be followed by stronger output growth in 2017, forecast at 4.1%.
According to the CPA, private housing starts will rise 5% in both 2016 and 2017; industrial activity is expected to increase 21.3% by 2019; offices construction to increase 7.0% in 2016 and 2017; and infrastructure work is forecast to rise 56.9% by 2019
In the accompanying statement, Francis, who was recently appointed a visiting professor at the University of Westminster, said: “The key fundamentals for the sector are generally positive and construction growth is set to be more balanced. Private housing work, especially in London and the south east, provided the majority of growth between 2012 and 2015. During this forecast period, however, all three of the largest construction sectors – private housing, commercial and infrastructure – are expected to drive industry activity.
“Private housing starts are forecast to rise 5% in both 2016 and 2017, buoyed by a high latent demand for home ownership, which is enabled through rising mortgage lending and policies from government. The demand-side policies in particular will fuel house price inflation further, especially in the capital, whilst also incentivising major house builders to increase building rates over the next 12-18 months.
“In addition, given all the government assistance to boost the housing market, house builders are likely to be under pressure to increase supply throughout parliament.
“There are significant risks to this forecast, however. First is the uncertainty regarding global economic prospects. The chief concern remains weakness in China and the effect it can have on other countries. Second is the EU referendum, likely due this year.
“While we make no assumption about the result, we note the uncertainty around the issue is already affecting investment decisions. Third, and perhaps of most importance for the industry, is the urgent challenge around skills shortages. The availability and cost of skilled labour has clearly impacted the house building sector; the recovery in other sectors is already showing a similar vulnerability.”