July: -3.1% m/m, -7.5% y/y
June: +1.8% m/m (revised from +2.7%)
May: -0.9% m/m (revised from -0.7%)
April: +0.1% m/m (revised from +0.5%)
March: +6.4% m/m (revised from +6.6%)
February: -6.4% m/m (revised from -6.0%)
—

PARIS (MNI) – Construction activity in the Eurozone fell sharply in
July, due mainly to a steep drop in Spain, Eurostat said Friday.

The 3.1% monthly drop left activity 7.5% below the depressed levels
of a year earlier and nearly 20% below pre-crisis highs.

Building construction led the downturn in July with a 3.3% drop
that gave a 7.9% annual decline. Civil engineering dropped 1.7% on the
month and was 6.0% lower on the year.

(The latest seasonally adjusted estimates are based on data from
seven of Eurozone’s 16 member states.)

For the full year, sector activity is widely expected to suffer a
further contraction, despite ongoing public stimulus for infrastructure
projects. Any recovery next year is likely to be dampened by more
restrictive public spending.

Leading indicators point to little change in the near term.
Builders polled by the European Commission said activity picked up
marginally in August but remained well below the long-term average.
Their assessment of order books was also somewhat less pessimistic.

However, builders surveyed by the magazine Construction Europe this
month said activity had slowed for the third straight month to the
weakest pace since February. The bulk of respondents still expect an
improvement in a year’s time.

At the six-month horizon, most financial analysts foresee little
change in activity and the rest are marginally optimistic on balance,
ZEW’s September survey showed.

The sector association Euroconstruct expects activity throughout
Europe to contract another 4% this year after an 8.8% drop last year,
marking the third year of recession.

“Looking forward, the prospects for western Europe are for a
sluggish but gradual pick-up in construction activity in 2011 (+0.6%),
gathering pace in 2012 (+1.8%),” the association forecast in June.
“Ireland, Spain and Portugal will do no more than stabilize at a deeply
depressed level.”

Construction in Spain fell 10.3% in July after a 5.7% surge ahead
of the one-point hike in the VAT on homes sales at mid-year. Activity
was 36.5% below the previous-year level. Having precipitated the
recession, the collapse of the housing bubble is now holding back the
economic recovery.

While housing starts in Spain stopped falling this spring and the
decline in residential investment slowed further in 2Q, the contraction
is likely to continue into next year. The government has cut back
infrastructure spending planned for the next two years by nearly E6
billion, or close to 20%, as part of its austerity program.

Germany posted a 0.9% upturn in July, reversing June’s decline for a 4.8% gain on the year. Builders polled by the Ifo institute last month
said current conditions had weakened slightly but remained close to
four-year highs. Medium-term expectations tumbled further from the
cyclical peak at the start of the year.

After the rebound in 2Q, the Bundesbank expects little further
catch-up in 3Q. While public stimulus measures could continue to lend
some support this year, a contraction in public demand is likely next
year.

In France, activity declined 1.0% on the month and was 3.3% was
lower on the year. While the ongoing decline in housing starts and the
slowing recovery in housing permits in recent months suggest that the
sector is not out of the woods yet, the pick-up in demand for new homes
and the upturn in prices raise hopes for a turnaround over the medium
term. In commercial construction, by contrast, activity remains
sluggish, with few signals for a recovery anytime soon.

The French statistics institute expects a further decline in sector
activity of 0.7% in 3Q, followed by a marginal upturn in 4Q, giving an
average drop of 4.7% for the full year.

As usual, monthly data were not released for Italy, where sector
activity in 2Q was down 3.5% on the year. Isae’s sector survey showed a
further recovery in sector sentiment in July, bolstered by new orders
and construction projects.

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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